Regal International Group Ltd - NRA Capital Research 2017-06-19: Delivers On Growth As Profitability Improves

REGAL INTERNATIONAL GROUP LTD. SGX: UV1

Regal International Group Ltd - Delivers On Growth As Profitability Improves

Regal International’s 1Q17 results were better than expected. While 1Q17 revenue was equivalent to about 22.5% of our prior forecast, PATMI grew to RM1.77m or 70.8% of our full year forecast. The improved profitability came about as gross margin grew to 31.5% in 1Q17 from 26.8% in 2016.
While we were correct to deem 4Q16’s gross margin of 46.4% as excessive, we are impressed that Regal managed to maintain gross margin at more than 30% for two quarters.

Regal Corporate Park Phase 1 (RCP1) was completed during 1Q17 and probably contributed for the bulk of revenue recognized during the quarter. Inventories comprising of mainly completed properties and construction materials rose by RM19.5m to RM50.7m during the same period.
Given that RCP1 has an estimated GDV of RM49.4m, we reckon that RCP1 was about 60% sold when completed.

Regal Corporate Park (RCP) is in the vicinity of the Bandar Samariang township being developed by Cahya Mata Sarawak and Sentoria Group Berhad. The township will host a water theme park to be developed by 2017 to 2018 and ongoing terrace and semi-detached projects by Sentoria in the township have sold well, experiencing take-up rates of 77% to 97%.
The entire RCP project differentiates itself by being the key industrial/commercial development in the area. We reckon that RCP will continue to benefit from the development of Bandar Samariang and experience positive sales post-completion.

Last month, Regal secured another RM10m of funding from KOJADI, following a RM15m loan in January. Both loans are at an interest rate of 8% and have a term of 3.5 years. The funds will help fund construction and facilitate revenue recognition from sold units.
Most of the remaining projects such as Airtrollis will continue to contribute revenue on an ongoing basis, based on their percentages of completion. Phase 3 of Airtrollis has already obtained a sales commitment of RM90m.

We revised forecast revenue growth in 2017 from 20% to 10% as 1Q17 revenue grew at a rate of only 8% over the 2016 quarterly average, but raised gross margin assumption from 22.5% to 26.8%, matching that of 2016.
We keep our valuation of S$0.300 unchanged, but caution that some time will still be needed to sell the completed properties. That said, Regal’s trailing 12-month revenue of RM132m is similar to that of other Sarawak developers such as Ibraco Berhad which has a market capitalisation of S$144m.
Conversely, Regal trades at a significantly lower market capitalisation of S$28.6m.

Liu Jinshu NRA Capital Research | http://www.nracapital.com/ 2017-06-19

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