CREDIT ANALYSIS REPORT

SKYWORLD CAPITAL BERHAD - 2023

Report ID 60538900469624 Popularity 120 views 28 downloads 
Report Date Nov 2023 Product  
Company / Issuer SkyWorld Capital Bhd Sector Property
Price (RM)
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Rationale
Rating action          

MARC Ratings has affirmed its ratings of AIS(cg)/MARC-1IS(cg) on SkyWorld Capital Berhad’s RM300.0 million Islamic Medium-Term Notes/Commercial Papers (IMTN/ICP) Programmes. The rating outlook is stable. 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 ratings affirmation primarily reflects SkyWorld’s continued healthy take-up rates for its property projects and strong financial performance, underpinned by a relatively high operating margin. Moderating the ratings are concerns on the impact of higher operating costs and weak domestic property market sentiments as well as potential risks associated with expansion. 

SkyWorld had an ongoing portfolio of projects with total gross development value (GDV) of RM2.1 billion as at end-June 2023, of which 66% comprised mid-priced residential housing and the remaining 44% lower-priced affordable housing. The average take-up rate for ongoing projects stood at 82% (excluding the Curvo Residences project launched in 2023, the average take-up rate would be 98%). MARC Ratings views the consistently strong take-up rate to be attributable to SkyWorld’s approach of primarily undertaking reasonably priced, urban residential developments which have comparatively high QLASSIC scores, reflecting quality, as awarded by the Construction Industry Development Board. The rating agency observes that SkyWorld’s operating margin of above 20% over the last five years is one of the highest among its peers. This is largely attributed to cost management strategies.

To broaden its earnings base, SkyWorld has ventured into build-to-rent projects in Kuala Lumpur for a period of seven to 10 years to provide recurring income. These projects will be on its existing idle landbank. To date, it has two projects in Setapak – SkyBlox (co-living housing) has been operational since August 2023 whereas SAMA Square (comprising retail units) is scheduled for operation in 1Q2024. Both projects are expected to provide annual revenue of RM8.7 million. Additionally, the group will undertake an affordable housing project on a joint-venture basis on a 3.34-acre land in Selayang. The group is also diversifying geographically with the planned acquisition of a 1.3-acre land in Ho Chi Minh City, Vietnam, for approximately RM68 million. The land has been earmarked for projects that include a 24-storey, high-rise residential development with an estimated GDV of RM310 million. The acquisition is expected to be completed by end-2024. This will augment the group’s existing landbank of 60.3 acres in Kuala Lumpur.

For FY2023, group revenue rose 6.5% y-o-y to RM841.4 million, mainly backed by higher sales of completed units and progressive billing from ongoing projects. Operating margin stood at 26.1%. Its large unbilled sales of RM951.9 million as at end-1H2023 provide earnings visibility over the near term. MARC Ratings views positively the group’s low unsold inventory of RM50.5 million as at end-June 2023 (end-June 2022: RM96.3 million). 

Through its listing on Bursa Securities’ Main Market in July 2023 that raised total gross proceeds from the public issue of RM166.4 million, SkyWorld has been able to bolster its equity base to about RM800 million. This has translated to a lower gross debt-to-equity (DE) ratio of 0.64x as at end-July 2023 (FY2022: 0.96x). The listing status has also enhanced SkyWorld’s profile and its ability to raise equity funding readily if required.

Rating outlook

The stable outlook reflects MARC Ratings’ expectation that SkyWorld will broadly maintain its credit metrics within the current rating band over the next 12-15 months.

Rating trajectory

Upside scenario

The rating could be upgraded if the group maintains steady growth of revenue and profitability, with a sustained improvement in credit metrics, in particular a leverage of below 0.6x.

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
  • Focus on affordable to mid-range residential property in urban areas in KL
  • Strong take-up rates 
  • Healthy operating margins
Key risks
  • Maintaining balance sheet strength as group expands operations 
  • Challenging domestic property industry outlook
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