Yesterday, SkyWorld Berhad signed a joint development agreement with the Penang Development Corporation (landowner) and its subsidiary PDC Properties in relation to the development of a 161.5 acres plot in Batu Kawan (Plot A), and  a 31.3 acres plot in Seberang Jaya (Plot B).

The company would collectively satisfy a landowner's endowment (being payment towards the Penang State's trust account) of RM542.9m over the course of four tranches over four years, funded by internally generated cash for its first few tranches (2QFY25 net gearing: 0.03x).

The agreement includes the proposed development of more than 35,000 affordable housing units across the two abovementioned plots. It will house two product concepts being: (i) Rumah Mampu Milik (10% of total units); and (ii) Rumah Bakat Baru Madani (90%) which will be priced between RM225k-RM420k, making up an approximate GDV of RM13b. It is slated to be launched in CY26 with a 10-year launch timeline and 15- year development period of which SKYWLD would also be responsible for its sale and marketing.The project looks to resolve the shortage of affordable homes in Penang, particularly with the rise of electrical and electronic industries in the state likely to cause an influx of skilled professionals going forward. That said, to improve homeownership in the state, an allocation of 50% to Penang-registered voters has been set with the remaining 50% being opened to other buyers.

Per SKYWLD's 2QFY25 results, the group's project pipeline consists of only four ongoing projects with a total remaining GDV of RM907m. Kenanga in its report opines that with the group's operations being predominantly Klang Valley-based and wholly dependent on subcontractors for development, the roll-out of launches during the early phases of the Penang project would be relatively light, before picking up more substantially throughout its 15-year development period. Further, it is exploring newly industrialised building system or IBS capabilities to enable better scalability and cost efficiency for the development, albeit details are scarce at this moment.

The house values SKYWLD at RM1.14, on a 30% discount to its RNAV which is at par with applied discount on MAHSING, a similarly affordable- focused developer which should see fewer demand risks and better turnaround against its peers (average discount to RNAV of 50%). The TP implies a PER of 13x for FY26, a 30% discount to average of 19x Fwd PER for its peers.

Kenanga also opines the abovementioned agreement would result in a kneejerk effect to share price, possibly pricing in the long-term value of Penang project in the immediate term. Though near-term earnings-conscious investors may shy away from the expectations of its narrow earnings delivery.