REGAL INTERNATIONAL GROUP LTD
UV1.SI
Sights Set High
Investment Actions
- We initiate coverage on Regal with a "BUY" rating and a 0.7x P/RNAV target price of S$0.43.
- Regal is poised to make the jump from a small niche developer to a substantially bigger one. As there is risk to this move, share prices have been weak of late, but a stake acquired now could bear enormous fruit in the medium term.
- Malaysia’s macro uncertainties are being played up in the media as dire, but they probably aren’t as severe as is popularly believed.
- The Sarawak property market is not well-covered or well-understood, and is stronger than that of West Malaysia.
- Regal has two major projects that will require additional capital to complete. If it’s able to realise its ambitions, the intrinsic value of the company increases dramatically.
- An additional fillip to company value would come if it were to divest its precision division and devote itself entirely to property development, which would improve its attractiveness to investors.
- The company is penalised by a short financial history, a confusing income statement and balance sheet, the uncertainties of the property sector and the macro environment. However, doing the required analysis suggests significant hidden upside.
Investment merits
- Regal’s current price to RNAV is 0.26x compared with an average 0.7-0.8x for Singapore listed and 0.6-0.7x for Malaysia-listed peers.
- Assuming Regal is able to realize its development plans, shares rerating to the approximate peer norm of 0.7x P/RNAV could mean up to 169% upside for investors on a time frame of a couple of years.
- So far shares have been weak for reasons mostly related to Malaysia’s various macro travails.
- We believe that these will in time prove to have been solvable, and that the current panic atmosphere prevailing in local media has created a buying opportunity for quality Malaysian names.
That little extra something
- In addition to the traditional story of a company beaten down by market forces and now offering exceptional value, Regal is an interesting foray into an unusual market with relatively high and relatively stable growth prospects.
- It has some innovative project financing methods, which the company calls part of an “asset-light strategy”, that reduce risk to the company.
- Further, it may be able to raise capital by disposal of the very assets it acquired during its 2014 reverse takeover of listed Hisaka Holdings Ltd.
- While certainly shares are illiquid and so far appear not to have found a bottom, they already offer a fascinating buy opportunity.
- We recommend entering with a sequence of small buys so as not to disturb prices too much. Buy now, hold for a year or two, and reap significant upside.
Phillip Research Team | http://www.poems.com.sg/ Phillip Capital 2015-08-06
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