Regal International Group Ltd - NRA Capital Research 2017-12-11: Maintains Profitability With Tight Cost Control

Regal International Group Ltd - NRA Capital Research 2017-12-11: Maintains Profitability With Tight Cost Control REGAL INTERNATIONAL GROUP LTD. SGX: UV1

Regal International Group Ltd - Maintains Profitability With Tight Cost Control

Commendable 9M17 performance

  • Year-to-date, Regal performed commendably as gross profit rose from RM23.5m in 9M16 to RM32.4m in 9M17 (+38%), despite revenue dropping by 7%.
  • The lower revenue could be due to fewer completed projects in 2017, whilst the company maintained tight cost control which raised gross margin from 20.7% in 9M16 to 30.5% in 9M17.
  • For 3Q17, gross margin was still a respectable 27.5%, versus 31.5% in 1Q17 and 32.8% in 2Q17 (averaging out to 30.5%).

But finance costs dragged on 3Q17 profitability

  • Regal's 9M17 PATMI of RM3.3m was equivalent to 73% of our previous forecast of RM4.5m for the full year and can be said to be within expectations. However, the company’s performance in 4Q17 may be affected by higher finance costs.
  • Profit from continuing operations fell from RM1.05m in 2Q17 to RM0.27m in 3Q17 partly due to higher finance costs which rose from RM0.9m to RM1.5m during the same period and the absence of RM0.3m of foreign currency gains.
  • On the other hand, we expect the company to perform better in 4Q17 compared to 3Q17, as the RM has appreciated by about 2% to 3% against the SGD from the end of September to-date, leading to potential translation gains.

Launched new Tropics City block in November

  • Regal recently launched block D of its large project Tropics City – a mixed development comprising of SOHO, residential and commercial units. 
  • Tropics City is notable for its location at Jalan Song – a mature residential and lifestyle vicinity within Kuching. Therefore, we can expect healthy demand for Tropics City. Blocks A, C and E are currently under varying stages of construction.

Acquisition of new project with the issue of 24.8m new shares

  • In October, Regal completed the acquisition of Wisma Majuniaga Sdn Bhd for RM11.5m via the issue of 24.8m new shares at S$0.15 each.
  • Wisma owns the development rights to build two blocks of residential/retail units with a total of 515 units in the Samrahan District, near Kuching. Construction is expected to commence from 2017 to 2020.
  • The acquisition cost works out to about RM22,330 per unit, compared to an expected average selling price of about RM340,000 per unit. We estimate that this project has a gross development value of RM174m and net development value of RM19.6m.

Beneficiary of inherent potential of Sarawak

  • Sarawak is rich in natural resources, land and labour – which explains why Regal has been traversing the region on trade missions, e.g. it organised a three-day festival in Nanning, China in November, which was attended by 165,000 people.
  • Looking ahead, we expect Regal Corporate Park and Tondong Heights to remain as key revenue drivers while the group accumulates pre-sales from the Tropics City and Treetops@Kemena projects.

Adjusted valuation to factor in Wisma Majuniaga project.

  • We estimate that the gross development value of this project by assuming plot ratio of 2.0x and an average selling price of RM500 psf for the residential component and RM1.000 psf for the retail component.
  • We assume that about ten percent of the floor area will be allocated for retail use.

Liu Jinshu NRA Capital Research | 2017-12-11
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