SkyWorld (SKYWLD MK) - Upgrade BUY as Major Catalyst Emerges

Date: 
2024-12-11
Firm: 
PHILLIP CAPITAL
Stock: 
Price Target: 
1.10
Price Call: 
BUY
Last Price: 
0.61
Upside/Downside: 
+0.49 (80.33%)
  • SkyWorld to jointly develop RM13bn GDV affordable housing with PDC
  • The development is expected increase its current land bank by 3-fold to RM18bn, supporting sales and earnings from FY27E onwards
  • We tweaked our FY26–27E EPS by 1-5% to factor in the earnings contribution from this development. Upgrade to BUY with higher target price at RM1.10

Malaysia’s largest RM13bn affordable housing development

SkyWorld has entered into 2 strategic agreements with Penang Development Corporation (PDC) and PDC Properties Sdn Bhd (PDCP) to jointly develop more than 35k affordable housing units across a combined area of 196 acres in Batu Kawan and Seberang Jaya. The initial land cost for this development is expected to be RM543m, with RM503m for the land and RM40.2m for project management fee, which are subjected to an annual increase of 6% and payable within 10 years from the date of JDA. This affordable housing development is projected to have a GDV of RM13bn, with the first phase expected to be launched in 2026.

Strategically located in FDI hotspot, attractive land-to-GDV cost

The development is part of PDCP’s new affordable housing scheme (New Talent Housing), with price ceiling at RM420k. The development is strategically located in Penang’s industrial hub, well positioned to grow along the prospering E&E sector. We are overall positive on this acquisition as the potential GDV of RM13bn over 15 years is expected to increase its current land bank by 3-fold to RM18bn, further strengthening its property development pipeline. After taking into account the indicative payment schedule and annual price adjustment, we estimate the total purchase consideration to be RM568m, translating to a land-to-GDV cost of 4.3% below its historical average of 14-16%. Post acquisition, we expect SkyWorld’s net gearing to increase to 0.1x (from 0.03x as at 2QFY25).

Upgrade to BUY with a higher TP of RM1.10

We raise our FY27E earnings forecasts by 5% to factor in the earnings contribution from this project but trim FY26E earnings by 1% on lower interest income post-acquisition. We raise our RNAV-derived target price to RM1.10 (from RM0.56) after imputing the RNAV of this project and reducing our RNAV discount to 30% (from 40%) on stronger development pipeline. With the latest replenishment, SkyWorld now enjoys improved earnings clarity, which should serve as a major catalyst for the stock. Upgrade to BUY call. Key risks include lower-than-expected property sales and higher building material prices.

Source: Philip Capital Research - 11 Dec 2024

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