Excerpts from analyst's report
NRA Capital analyst: Liu Jinshu
 Dominic Su, executive chairman of Regal International. NextInsight file photo.Significant Portfolio GDV of RM1.70 billion. Following our previous update on Regal, we reviewed Regal’s projects one-by-one and updated our assumptions. We counted 24 projects with a total gross development value (GDV) of RM 1.70 billion. Estimated net development value from these projects in turn amount to RM254.11m. Adding back Regal’s equity base, RNAV works out to about RM319.60m or S$0.532 per share. |
♦ Six projects account for >70% of RNAV. Out of the 24 projects, we further estimate that six key projects have a total GDV of RM 1.39 billion, or RM 230.67 m in net development value, after deducting selling expenses and tax. We have provided our assumptions for these six projects in our report.
| Regal International | |
| Share price: 11.8 c |
Fair value: 35 c |
♦ Major projects linked to key themes. We found that these six projects are typically located in areas where demand can be expected to be positive. For example, the Regal Corporate Park project is actually a play on the development of a township by Cahya Mata Sarawak Bhd and a resort city has been planned in the vicinity of the Regal Corporate Park.
Another two projects are located in a key residential district in Kuching city area, with one project in Bintulu that leverages on the development of the nearby Samalaju Industrial Park as an investment merit. These attributes suggest that Regal’s key investments are well selected in spite of a lengthy list of more than 20 projects.
| ♦ About to turn profitable |
 "Based on a RNAV of RM319.60m, and applying a discount of 34.6%, we estimate that Regal is potentially worth S$0.350 per share. Hence, the upside potential of Regal can be quite significant compared to its share price of S$0.100. Moreover, the case for Regal to turn profitable is now stronger as a number of projects are slated for completion in 2016 and Regal is now in the midst of disposing its loss making legacy precision manufacturing business."-- Liu Jinshu (photo) |
♦ Asset light business model supports fast expansion. Regal is able to undertake some 24 projects with such high RNAV as it enters into development rights agreements with the landowners and does not purchase the land outright. Hence, Regal can take on a larger portfolio of projects without raising its capital needs.
In fact, construction costs can be funded via bank borrowings once sales reach an adequate level. To enhance value, Regal tends to break larger projects into phases. The case for higher selling prices for subsequent phases will typically improve once the first phase is fully sold and completed.
On the other hand, subsequent phases can also be deferred or revised if sales for the first phase is weaker than expected.
♦ Maintain high return/high risk view. Execution risk remains a key concern, but we see Regal as a high return/high risk early investment opportunity at this stage.
We also have not updated our forecasts for FY16 to FY18, as Regal is in the midst of disposing the Precision Business.
Full report here.
