Financial Analysis of EC World REIT – Net Profit Decline

Report Date and Financial Year

The report is dated 12 November 2024, covering the financial performance for the third quarter of the fiscal year 2024 (3QFY2024).

Business Description

EC World Real Estate Investment Trust (EC World REIT) focuses on investing in a diversified portfolio of income-producing real estate primarily used for e-commerce, supply-chain management, and logistics purposes. The company’s core business operations are segmented into Port Logistics, E-Commerce Logistics, and Specialized Logistics, with properties predominantly located in China.

Industry Position and Competitors

EC World REIT operates within the competitive logistics and e-commerce real estate sector. Key competitors include other logistics REITs and property developers with a focus on industrial and logistics properties. The company maintains a competitive position due to its strategic assets in significant logistics hubs in China.

Revenue Streams and Customer Base

EC World REIT’s revenue streams are derived from rental income from its logistics properties. The company’s customer base primarily includes logistics companies and e-commerce businesses. A significant portion of its revenue comes from long-term lease agreements, providing a stable income stream.

Financial Statement Analysis

Income Statement

• Gross Revenue: 3QFY2024 gross revenue was S\$25.081 million, a 7.1% decline year-on-year.
• Net Property Income (NPI): NPI decreased by 7.8% year-on-year to S\$22.807 million.
• Finance Costs: Increased by 22.3% year-on-year to S\$14.375 million due to higher interest rates for offshore facilities.
• Income Tax Expenses: Decreased by 17.4% year-on-year to S\$4.513 million.
• Distribution Per Unit (DPU): Calculated DPU was 0.401 cents, a significant decline of 56.2% year-on-year.

Balance Sheet

• Cash and Cash Equivalents: Decreased from S\$100.964 million as of 31 December 2023 to S\$4.442 million as of 30 September 2024.
• Investment Properties: Valued at S\$716.065 million, down from S\$805.629 million due to the weakening of RMB against SGD.
• Total Assets: Reduced from S\$1.005 billion to S\$877.453 million.
• Total Liabilities: Decreased from S\$910.419 million to S\$830.273 million.
• Net Assets: Dropped to S\$47.180 million from S\$94.861 million, resulting in a NAV per unit of S\$0.06.

Cash Flow Statement

Details on cash flow activities are not explicitly stated in the report. However, significant cash outflows were noted for the repayment of revolving credit facilities.

Dividend

No distribution for 2H2024 due to insufficient funds. The company has deferred the distribution for 1H2023 and 1H2024 and has not declared any dividends for 2H2023 and 2H2024.

Key Findings

Strengths

• Strategic asset locations in major logistics hubs in China.
• Stable revenue base from long-term lease agreements.

Risks

• Significant decline in revenue and NPI.
• High finance costs due to elevated interest rates.
• Low cash reserves and high leverage ratio of 56.1%.
• No dividend distribution due to insufficient funds.

Special Activities

• Restructuring of Onshore Facilities completed with a supplementary agreement signed on 16 July 2024.
• Received Pre-enforcement Notice from Offshore lenders, allowing asset divestment to repay Offshore Facility by 31 May 2025.

Investment Recommendations

For Current Investors

Given the significant decline in revenue, higher finance costs, and the absence of dividend distributions, current investors should consider holding off any additional investments and closely monitor the company’s efforts to restructure its debt and improve its financial stability.

For Potential Investors

Potential investors should exercise caution and consider waiting for clearer signs of financial improvement and successful debt restructuring before investing in EC World REIT.

Disclaimer

This analysis is for informational purposes only and should not be considered financial advice. Investors should conduct their own research or consult with a financial advisor before making any investment decisions.