• SkyWorld’s 6MFY25 results came in below ours and consensus estimates

• We cut our FY25-27E earnings forecast by 7-30% to reflect lower project margins and higher effective tax rate

• Maintain HOLD rating and RNAV-derived target price at RM0.56

Miss expectations

SkyWorld recorded 6MFY25 revenue and core net profit decline of 38% and 66% YoY, respectively, due to a lower number of ongoing projects after the completion of The Valley, Sky Awani IV, and V. EBITDA margin contracted 9ppts YoY to 17%, due to the absence of project finalisation savings and higher-than-expected adjusted budget cost relating to a project in 2QFY25. Overall, 1HFY25 results missed ours and consensus expectations, representing 28% and 26% of both full-year estimates. The deviation against our forecast was mainly attributable to weaker-than-expected project margins and higher-than-expected tax rates.

Sequentially stronger 2HFY25 supported by RM800m launches

Sequentially, 2QFY25 core net profit rose 5% QoQ, driven by stronger revenue of RM124m (+26% QoQ), supported by improved progress milestones for Curvo Residences (46%) and Vesta Residences (13%). However, EBITDA margin declined 2ppts to 16% due to higher adjusted budget costs incurred during the quarter. As a result, earnings growth lagged behind revenue, with core net profit at RM10.5m. We expect 2HFY25 to deliver stronger sequential earnings, driven by increased progress billings from Curvo Residences and Vesta Residences, coupled with the launch of 2 new developments located in Brickfield and Setapak, with a combined GDV of RM800m which could add to the current unbilled sales of RM592m (+7% QoQ).

Maintain HOLD with unchanged TP at RM0.56

We cut our earnings forecasts by 7–30% to account for the lower project margins and higher effective tax rates. We maintain our HOLD rating and RNAV-derived target price of RM0.56. Potential landbank replenishments to bolster its RM4.6bn remaining GDV would be an upside catalyst. Key risks to our HOLD call include faster-than-expected expansion into Vietnam, lower-than-expected property sales, sluggish landbank replenishments, and rising raw material prices.

Source: Philip Capital Research - 25 Nov 2024