MARC Ratings has affirmed its ratings of AIS(cg)/MARC-1IS(cg) on special purpose funding vehicle SkyWorld Capital Berhad’s RM300.0 million Islamic Medium-Term Notes/Islamic Commercial Papers (IMTN/ICP) Programmes. The rating outlook is stable. The ratings reflect the credit profile of parent SkyWorld Development Berhad (SkyWorld) which has extended an irrevocable and unconditional guarantee on the programmes. As at end-June 2024, the programmes have an outstanding amount of RM50.0 million.
SkyWorld’s healthy track record in developing high-rise residential projects in urban areas in the Klang Valley, strong operating margin and conservative balance sheet structure are key rating drivers. Moderating the ratings are the potential impact on margins from rising costs and execution risk on foreign projects.
Ongoing developments had a total gross development value (GDV) of RM2.0 billion as at end-March 2024. Excluding the recently launched Vesta Residence in October 2023, SkyWorld recorded a 72.6% take-up rate. Its focus on affordable and mid-priced residential housing in proximity to the KL city centre has been a key factor for the strong response. SkyWorld’s relatively low land cost-to-GDV of mostly less than 10.0% has contributed to an overall strong operating margin which stood at 25.6% for financial year ended March 31, 2024. Unbilled sales of RM548.1 million provide earnings visibility in the near term while the declining trend of unsold inventories which stood at RM24.8 million would support SkyWorld’s bottom line.
SkyWorld’s acquisition of a 1.3-acre land parcel for RM67.9 million in Ho Chi Minh City, Vietnam, remains on track to be completed by end-2025. The land, located 12 kilometres from the central business district, is planned for a mixed development consisting of a high-rise residential building with commercial spaces. The development has an estimated GDV of RM310 million and is targeted for pre-sales in 2025 prior to its launch in 2026. This first overseas venture exposes the group to execution and regulatory risks; the rating agency draws comfort from this project’s modest GDV and the group’s expertise in property development which would mitigate construction risk.
MARC Ratings notes that SkyWorld has been able to generate recurring income although this remains modest as of date. SkyWorld’s SkyBlox project comprising 320 lettable rooms and based on a co-living concept has reached a 41.0% occupancy rate as at end-March 2024. The rating agency understands that there are 160 units that remain unopened to the public as the group is working on potential collaborations for short-term rentals. Another project, SAMA Square, which consists of retail units and located in the vicinity of SkyBlox, had a soft opening in early May 2024. It has an occupancy rate of nearly 90.0%. Both projects are expected to provide annual revenue of RM5.0 million to RM7.0 million, assuming full occupancy.
Group revenue declined by 18.2% y-o-y to RM688.0 million in FY2024 on the back of a decline in progress billings; many of its projects had reached their mature stages, among which are SkySierra Residences (The Valley), SkyAwani IV and SkyAwani V Residences that were completed during the financial year. Borrowings stood at RM489.6 million as at end-FY2024. Anchored by an enlarged equity base of more than RM800.0 million from its listing on Bursa Malaysia in July 2023, the group’s gearing ratio has improved, as reflected by a debt-to-equity ratio of 0.58x (FY2023: 0.78x). Borrowings are not expected to rise sharply over the near term and the leverage position is expected to be broadly maintained. Liquidity position remains healthy with cash and bank balances of RM499.9 million as at end-FY2024.