Regal International Group: Divestment of underperforming precision business and offtake agreement add income visibility March 3, 2017

Since our last downgrade (to Neutral), Regal International Group (RIG) has made strides towards aligning its corporate strategy to an exclusive focus on its property development business, particularly so after the divestment of its legacy precision business in December 2016. Without the influence of the discontinued operation, the Group is starting to see a turnaround, albeit with a modest RM0.4mn NPAT in FY16 versus a loss of RM70.9mn in FY15.

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  • Disposal of underperforming precision business removes overhang

The total deficit caused by its legacy precision business is RM69.5mn (including operating losses, goodwill impairment, and loss on disposal). This compares with the current Group equity of RM54.9mn as of FY16. Without the influence of the discontinued operation, the Group is starting to see a turnaround, albeit with a modest RM0.4mn versus a loss of RM70.9mn in FY15.

  • Entry into offtake agreement for Airtrollis Phase 3

More recently, RIG entered into a conditional offtake agreement for the sale of all 276 units of strata titled residential apartments for Phase 3 of its Airtrollis property with MyAngkasa Bina Sdn. Bhd. (Purchaser). The purchaser is obliged to market and sell all 276 units or purchase all unsold units upon completion for an aggregate total value of c.RM90mn.

  • Strong pipeline of projects in 2017

The Group completed a total of seven property projects in FY2016. A strong pipeline of projects remains lined up for FY2017. Phase 1 of Regal Corporate Park, the Group’s industrial park development, and Phase 1 of Airtrollis, its residential and retail development near Kuala Lumpur International Airport, are also well on track for completion in 1H2017. Both projects make up a total of c.55.3% of our previously calculated Revalued Net Asset Value (RNAV)

Ceasing Coverage due to low liquidity of stock and internal resource re-allocation

While we believe the recent divestment of its legacy precision business and offtake agreement remove major overhangs and add income visibility to RIG’s earnings, we are ceasing coverage on the stock due to the lack of trading liquidity and a re-allocation of internal resources.

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Tan Dehong
Investment Analyst
Phillip Securities Research Pte Ltd

Dehong covers primarily the REITs and property developer sector. He has close to 7 years experience in equities related dealing and research roles.

He graduated with a Masters of Science in Applied Finance from SMU and Bachelors of Accountancy from NTU.

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