SINGAPORE (Apr 11): NRA Capital continues to value Regal International Group at 30 cents each, based on the gross development value (GDV) and estimated profitability of the projects it has at hand, but excluding those completed in 2017.
But NRA admits the realisation of such value will depend on the group’s ability to sell these projects and realise cash flows from them, which should take some time.
"So far, Tondong Heights Phase 2, with a GDV of RM23 million, is about 70% sold, while Tropics City with SOHO and apartments GDV of RM199 million, is about 50% sold. These projects will continue to contribute revenue in 2018," says analyst Liu Jinshu in a Tuesday report.
Liu says Regal has performed comparatively well in 2017, recognising RM110 million ($37.2 million) of property development revenue while its peers’ property development revenue fell by 24% to 29% year-on-year.
In addition, Liu notices Regal has been looking beyond its traditional markets to grow. New ventures include an MOU to explore the development of education properties in Perlis and Sarawak and an MOU to develop and manage communal land within the Bako National Park.
In FY17, Regal reported a 13% increase in revenue to RM168.6 million. Growth was mainly driven by an increase in construction revenue, arising from project management work undertaken by the group.
Due to local statutory reasons, Liu says Regal would undertake project management contracts to design, construct and sell properties at some projects and construction revenue refers to the value of building activity performed. As a result, construction revenue rose to RM46.7 million in 2017 from RM12.7 million in 2016.
However, construction revenue has lower margin and group gross margin dropped from 46.4% in 4Q16 to 17.0% in 4Q17 and 25.5% in 2017. Had Regal maintained its gross margin at 25% in 4Q17, Lin says the group’s gross profit would have been higher by RM5.3 million and resulted in profitability in 4Q17. Conversely, the group reported a net loss of RM3.24 million in 4Q17.
As at Dec 31 2017, Regal’s balance sheet included RM71.8 million of inventories and RM17.8 million of investment properties. Cumulatively, these assets grew by RM52.7 million in 2017. In contrast, development properties fell to RM63.7 million from RM107.6 million.
All in, Liu says it will help to boost confidence if Regal can demonstrate higher balance sheet liquidity, for example by lowering receivables or inventories.
Shares in Regal International are trading at 13 cents or 26.5 times FY18 earnings or 1.36 times book value.
