MARC Ratings has assigned preliminary ratings of AA-IS and MARC-1IS to SIBS Sdn Bhd’s proposed Islamic Medium-Term Notes (IMTN) Programme of up to RM3.0 billion and Islamic Commercial Papers (ICP) Programme of up to RM500.0 million, with a combined aggregate limit of up to RM3.0 billion. The rating outlook is stable.
The assigned ratings incorporate SIBS’ strength as a fast-growing player in modular housing manufacturing due to its ability to undertake the end-to-end building process, its sizeable order book and its strong revenue growth. These strengths are moderated by execution risk due to rapid expansion plans and customer concentration risk, given SIBS’ significant exposure to a large nation development project in the Kingdom of Saudi Arabia (KSA).
SIBS, a subsidiary of Sweden-based SIBS AB Group, operates and owns two plants manufacturing modular housing units in Simpang Ampat, Penang, with a total capacity of 12,000 modules p.a. (about 6,000 units at an average of two modules per apartment unit). Both plants are currently running at 100% capacity. Its parent, SIBS AB Group, provides support services, namely designing, marketing, and logistics, including on-site assembly. The group utilises proprietary software and employs an in-house mounting system SIBS Connect. MARC Ratings views that the group’s highly integrated manufacturing process has enabled a fast turnaround with a 40% reduction in time and 20%-30% reduction in cost compared to the conventional method of construction.
SIBS commenced production in 2018 to serve the Swedish housing market, where about 80% of the country’s housing is modular-based, and expanded to KSA in 2023 when it secured RM4.0 billion worth of contracts from NEOM Company, which is wholly owned by KSA’s sovereign wealth fund, Public Investment Fund. The NEOM project is an integral part of KSA’s Vision 2030 plan that encompasses a linear city and an industrial and logistics hub, among others. SIBS has plans to set up a fabrication facility in KSA for the assembly of 2D panels and 3D modular units through 2035. Notwithstanding these projects providing strong earnings visibility over the medium term, the rating agency notes that SIBS is exposed to high concentration risk in KSA; the geographical risk would be mitigated by its current efforts to penetrate the UK, Australia and New Zealand. Order book replenishment from Sweden and the UK through 2027 would amount to about RM1.6 billion.
For 1H2024, SIBS recorded revenue of RM1.5 billion and pre-tax profit of RM338.6 million. OPBITDA margin is expected to be about 20% by end-2024. Total borrowings stood at RM229.4 million, translating into gross and net debt-to-equity ratios of 0.35x and 0.17x as at end-June 2024. SIBS’ capacity expansion plans of about RM720 million would be funded by the proposed initial issuances under the rated sukuk programmes by end-2024. Borrowings are expected to rise to about RM900 million by end-2024 and will be broadly sustained over the near to medium term.