We initiate coverage on Regal with a "BUY" rating and a 0.7x P/RNAV target price of S$0.43.
■ Regal is poised to make the jump from a small niche developer to a substantially bigger one
. As there is risk to this move, share prices have been weak of late, but a stake acquired now could bear enormous fruit in the medium term.
■ Malaysia’s macro uncertainties are being played up in the media as dire, but they probably aren’t as severe as is popularly believed.
■ The Sarawak property market is not well-covered or well-understood, and is stronger than that of West Malaysia.
■ Regal has two major projects that will require additional capital to complete. If it’s able to realise its ambitions, the intrinsic value of the company increases dramatically.
■ An additional fillip to company value would come if it were to divest its precision division and devote itself entirely to property development, which would improve its attractiveness to investors.
■ The company is penalised by a short financial history, a confusing income statement and balance sheet, the uncertainties of the property sector and the macro environment. However, doing the required analysis suggests significant hidden upside.
Regal’s current price to RNAV is 0.26x compared with an average 0.7-0.8x for Singapore listed and 0.6-0.7x for Malaysia-listed peers.
Assuming Regal is able to realize its development plans, shares rerating to the approximate peer norm of 0.7x P/RNAV could mean up to 169% upside for investors on a time frame of a couple of years.
So far shares have been weak for reasons mostly related to Malaysia’s various macro travails. We believe that these will in time prove to have been solvable, and that the current panic atmosphere prevailing in local media has created a buying opportunity for quality Malaysian names.
That little extra something
In addition to the traditional story of a company beaten down by market forces and now offering exceptional value, Regal is an interesting foray into an unusual market with relatively high and relatively stable growth prospects. It has some innovative projectfinancing methods, which the company calls part of an “asset-light strategy”, that reduce risk to the company. Further, it may be able to raise capital by disposal of the very assets it acquired during its 2014 reverse takeover of listed Hisaka Holdings Ltd.
While certainly shares are illiquid and so far appear not to have found a bottom, they already offer a fascinating buy opportunity
. We recommend entering with a sequence of small buys so as not to disturb prices too much. Buy now, hold for a year or two, and reap significant upside
. (Read Report)
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Source : Phillip Securities Research
Labels: Property Sector, Regal International Group