Nearly two years after it listed on the SGX mainboard, Regal International looks set to report a turnaround in profitability as several of its property development projects in Sarawak are completed. Its pipeline of projects and innovative plans look set to drive the company higher.

72Residences72 Residences at Jalan Song, a prime location in Kuching. It is just 10 minutes’ drive from Kuching International Airport. 1Regal Corporate Park -- just 7 km from Kuching city and within easy reach of the beaches of Damai and Santubong.NRA Capital in its 25 Aug 2016 report said:

1) Revenue from 72 Residences Block 1 (est. gross development value of >RM30m) and Regal Corporate Park Phase 1 (est. gross development value of >RM40m) will only be recognized on completion in 4Q16 or latest 1Q17.

164Airtrolis in Nilai, Negeri Sembilan:  Just half an hour's drive to the Kuala Lumpur International Airport.2) Regal will likely swing to profitability once revenue from these two projects are recognized.

3) Airtrollis Phase 1 is expected to contribute about RM20m to RM30m of revenue over the next two quarters.

More excerpts from NRA report by analyst Liu Jinshu:

dominic su 8.16Dominic Su, executive chairman of Regal International, holds a M.Sc in Building Science from the National University of Singapore, and a double degree -- Bachelor of Engineering (Electrical Engineering) and a Bachelor of Science from the University of Sydney.
Photo: Company
Eyeing the hospitality and tourism sectors. Recently, Regal has partnered itself with various industry players to explore projects and opportunities in the hospitality and tourism sectors. 

For instance, Regal has entered into a MOU with XY Hotel Holdings to leverage on XY Hotel’s hotel management and online portal systems.

Another venture is to leverage on Sarawak’s natural environment e.g. rainforests and wildlife to develop and operate so-called “eco-resorts”.

The entire list of recent MOUs: 

Date Development Partner
19 April 16 Explore opportunities to develop and commercialise innovation Malaysia Innovation Hub
18 July 16 Collaborate on implementation of China's beautiful village business model in Malaysia Hangzhou Ego Group Co.
28 July 16 Assess potential of 2 properties to own, develop and operate an eco-resort cum master planned vacation community The Destination Lab LLP 
Ong & Ong
Kingsmen Exhibits Pte Ltd
3 Aug 16 Assess feasibility of forming an asset management company to acquire target portfolio of quality real estate projects SINAD Sports
16 Aug 16 Exploring innovative hospitality offerings targeted at "Gen X" and Gen Y" travellers XY Hotel Holdings
19 Aug 16 To bring in Bumbu Cabe restaurant to its First Enrichment Mall for Tropics City project Suria Kesturi Abadi

Share price: 
15 c
Fair value: 
33 c

Tourism is third largest contributor to Sarawak’s economy and accounts for about 15% of the state’s GDP. Hence, there is potential in Regal’s efforts. However, growth may very well come from domestic tourism. The number of visitors to Sarawak fell by 6.7% year-on-year to 2.165m in the first six months of 2016. 

The decline was mainly due to a 23% fall in foreigner arrivals to 1.03m. However, domestic tourists or visitors actually rose by 15.7%, to 1.13m mainly from the neighbouring Sabah state.

The table below shows how the fair value of Regal share is derived:

(COC: Completion of Construction; POC: Percentage of completion) 

Major ongoing projects Est. GDV Gross Profit PAT  Revenue recognition method
Serapi Maju 13.51 2.09 0.55 COC, 3Q16 or 4Q16 100% recognition
Regal Corporate Park Phase 1 49.4 16.24, 8.47 COC, 4Q16 or 1Q17 100% recognition
72 Residences Block 1 36.9 8.19 3.38 COC, 4Q16 or 1Q17 100% recognition
Airtrollis Phase 1 (est. to be recognized) 51.975 7.43 1.38 POC, substantially recognized in 2015
Treetops@Kemena 202.2 44.93 18.53 Completion in 2018, still in early stage of construction
Tropics City SOHO and apartments 204.9 69.29 36.6 Completion in 2019, still in early stage of construction
Other Projects
Ashraf Avenue 2 26.51 4.58 1.45 COC, completion in 2016
Tondong Heights Phase 2 22.97 5.91 2.71 COC, completion in 2017
72 Residences Block 2 28.9 8.67 4.34 COC, completion in 2017
Airtrollis Phases 2 and 3 220.8 31.54 7.1 POC, completion in 2018, 2019
Airtrollis shophouse and malls 25.8 4.77 1.63 COC, completion in 2019 or later
Tropics City Mall 110.64 55.32 33.19 COC, completion in 2019
Regal Corporate Park Phase 2 and 3 328.1 173.93 105.83 COC, completion in 2020 onwards
Minor projects
- COC in 2017 114.12 19.87 6.34
- POC, completion in 2017 6.88 1.45 0.57
- COC in 2018 36.31 15.52 8.91
- POC, completion in 2018 64.77 14.65 6.13
-POC, completion in 2019 22.78 3.31 0.78
Total net development value (RM m) 247.9
Book value of Regal as of 30 June 2016 (RM m) 59.95
RNAV (RM m) 307.8
Discount (based on 15% discount rate per annum) 35.1%
Discounted RNAV (RM m) 199.8
Number of shares (m) 200.11
Value per share (RM) 0.998
Value per share (S$) 0.332 Rounded to S$0.330, based on SGDRM rate of 3.0
Source: Company, NRA Capital *Key costs and ASP assumptions are provided in report dated 14 July 2016


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