Regal International Group Ltd - NRA Capital Research 2017-01-19: Recent Strategic Partnerships Strike Even Closer To Home

Regal International Group Ltd - NRA Capital Research 2017-01-19: Recent Strategic Partnerships Strike Even Closer To Home REGAL INTERNATIONAL GROUP LTD. SGX: UV1

Regal International Group Ltd - Recent Strategic Partnerships Strike Even Closer To Home

Partnering with local cooperatives to boost sales

  • On 3 January, Regal International announced that it has entered into a conditional off-take agreement with MyAngkasa Bina Sdn. Bhd. (ANGKASA) for the marketing and “underwriting” of the residential units of Airtrollis Phase 3. Under the agreement, ANGKASA will market and sell the 276 units on behalf of Regal or otherwise purchase all unsold units upon project completion for an aggregate value of about RM90m.
  • On 12 January, Regal further announced that its subsidiary has successfully raised RM15m of investment from Malaysian cooperative Koperasi Jayadiri Malaysia Berhad (KOJADI) via the issue of 8% redeemable preference shares (RPS) of 3.5 years’ tenure.

Deals enhance financial certainty of group

  • The “underwriting” agreement with ANGKASA provides Regal with the financial leverage to fund the construction of this project. The average selling price implied by the aggregate sales value of RM90m for the 276 residential units is actually higher than that represented by our GDV estimate of RM92.4m for 288 residential and commercial units in Phase 3.
  • The RPS issue also reduces the balance sheet risk of the company and significantly enhance Regal’s working capital position.

Potential for more deals to come

  • ANGKASA is a subsidiary of an apex cooperative with over 7.5m cooperative members.
  • KOJADI is a cooperative that disburses educational loans, business and SME loans in Malaysia that also invests in shares, properties and other assets, and has more than 62,000 members and assets of more than RM156m.
  • We reckon that Regal may try to strike more of similar deals with ANGKASA and other large scale cooperatives that have the requisite financial capacity.

Share price has yet to reflect upside

  • In total, both deals have a value of about RM105m or S$33.65m.
  • We have previously calculated that Regal’s projects have a GDV of at least RM1.5 billion or about S$490m and have valued Regal at S$0.315 per share or S$63m. In contrast, Regal currently only has a market capitalisation of S$29.0m.
  • These deals actually increase the certainty of Regal delivering on its RM1.5 billion GDV of projects and should be a positive for Regal’s share price.

Executive directors personally guarantee RM15m of RPS

  • We also highlight that the two executive directors of Regal have each provided a personal guarantee in favour of KOJADI to secure the investment from KOJADI for the Group. Their decision is commendable and shows their commitment in Regal.
  • In this update, we keep our forecasts, valuation of S$0.315 and OVERWEIGHT rating unchanged, but highlight that financial risks have been substantially reduced with these deals. Hence, we reclassify Regal from high return / high risk to high return / high-average risk.

Liu Jinshu NRA Capital Research | http://www.nracapital.com/ 2017-01-19
SGX Stock Analyst Report OVERWEIGHT Maintain OVERWEIGHT 0.315 Same 0.315