SKYWORLD CAPITAL BERHAD - 2023 |
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| Report ID | 60538900469434 | Popularity | 330 views 54 downloads | |||||
| Report Date | Apr 2023 | Product | ||||||
| Company / Issuer | SkyWorld Capital Bhd | Sector | Property | |||||
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| Rationale |
Rating action MARC Ratings has assigned ratings of AIS(cg)/MARC-1IS(cg) to SkyWorld Capital Berhad’s RM300.0 million Islamic Medium-Term Notes and Commercial Papers programmes with a stable outlook. SkyWorld Capital is the funding vehicle of parent SkyWorld Development Bhd (SkyWorld) to undertake the sukuk issuance. SkyWorld has extended an irrevocable and unconditional guarantee on the programme. Rationale The assigned ratings incorporate SkyWorld’s strong take-up rates due to a focused strategy on building high-rise residential units in populous urban areas that mitigates demand risk. The ratings also considered SkyWorld’s healthy operating margin of above 20% over the last four years owing to the group’s conservative approach to property development to reduce land cost as well as staggering its property launches to be in line with market sentiments. These strengths are counterbalanced by the weakening outlook on the domestic property market due to the rising interest rate environment and inflationary pressures that would weigh on consumer sentiments. Group leverage as reflected by debt-to-equity (DE) ratio of 0.95x as at June 2022 (1QFY2023) is considered high for the rating band. In assigning the ratings, MARC Ratings has factored a potential decline in the DE ratio to 0.6x on an expected increase in total equity by end-1H2023. A relatively new player in the domestic property industry, SkyWorld’s maiden project, SkyArena, a RM2.3 billion master development project on about 30 acres of land in Setapak, Kuala Lumpur, was launched in 2014. The land was acquired through a land swap agreement between SkyWorld and a local council under which the group was to design-and-build a comprehensive sports complex in exchange for the land. The four-phase development of SkyArena comprises high-rise residential projects and a commercial-cum-retail centre; of these, two residential blocks (Phase 1 and 2) have been completed. Phase 3 comprising another high-rise residential development is upcoming and slated for completion in 2027 while Phase 4 consisting of a commercial-retail centre is targeted to be launched in 2026. The group has a balance gross development value (GDV) of RM1.4 billion for the SkyArena master development. SkyWorld’s other category of development is the SkyAwani projects comprising affordable units under the government’s affordable housing programme known as the “Residensi Wilayah Keluarga Malaysia’’ (RUMAWIP). As of date, SkyWorld has completed three of its five SkyAwani projects with a total GDV of RM1.31 billion comprising 3,839 residential units and 162 commercial units. SkyAwani IV and SkyAwani V are currently ongoing and carry a combined GDV of RM723.2 million, slated for completion in 2023 and 2024. SkyWorld’s several other high rise residential projects include EdgeWood Residences, SkySierra Residences (The Valley) and SkyVogue Residences. Collectively making up a GDV of RM1.6 billion, the projects are expected to be completed by 2023 and 2025. As of June 2022, take-up rates for the projects stood at 67.4%, 87.5% and 93.7%. As at end-June 2022, SkyWorld’s ongoing projects with combined GDV of RM2.3 billion recorded an average take-up rate of 89.9%. The strong take-up rate reflects the nature of SkyWorld’s current developments that are less vulnerable to property downcycles. The rating agency notes that with sizeable unbilled sales of RM1.0 billion, SkyWorld has earnings visibility over the medium term. Its landbank of 60.1 acres in urban and suburban areas in Kuala Lumpur would provide development opportunities for high-rise projects. For FY2022, revenue rose sharply y-o-y to RM790.4 million (FY2021: RM488.8 million) following the accelerated completion of projects; this was on resumption of economic activities following the easing of pandemic-induced restrictions. Operating profit margin of around 20% is commendable given its present focus on the affordable and medium-priced segments. Its unsold inventory stood at a manageable level of RM96.3 million. Total borrowings stood at RM399.5 million as at end-2QFY2023. The drawdown from the ICP/IMTN programme will be utilised for working capital. Rating outlook The stable outlook reflects our expectation that SkyWorld will broadly maintain its credit metrics within the current rating band in the near term and strengthen its balance sheet in tandem with their business growth. Rating trajectory Upside scenario No upgrade is envisaged in the near term. On a longer term, the rating could be upgraded premised on steady growth of revenue and profitability, with improved credit metrics on a sustained basis, in particular its leverage position to below 0.5x. Downside scenario The rating could come under pressure if there is a sharp decline in sales performance and/or substantial increase in borrowings that would give rise to weaker interest and debt coverages. Key strengths
Key risks
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