Swedish prefabricated housing firm set to issue 3Y MYR bond at 5.60% IPG

- Following the last issuances (1Y at 5.30% and 2Y at 5.45%) on 28 February 2025, SIBS Sdn Bhd intends to issue another 3Y bond at 5.60% IPG.

- The issuance is rated as AA- with a stable outlook by MARC.

- The proceed from the bond issuance is intended to support SIBS’s foray into new markets, with bond tenure likely structured to align with the gradual cash inflows expected from its order book contracts.

- SIBS management has indicated that this move represents a gradual transition from the current short-dated Islamic Commercial Papers (ICPs), which will mature in June 2025, to longer-tenured Islamic Medium-Term Notes (IMTNs), better aligning with the company’s capital needs.

- SIBS Sdn Bhd is a modular housing manufacturer utilising on Industrial Building System (IBS). It is likened to building a “LEGO” house in a factory, where fully constructed modules are shipped to housing site for assembly.

- SIBS Sdn Bhd is the manufacturing arm of SIBS AB, the parent company that provides services like designing, marketing, logistics and on-site assembly. Together with parent company, SIBS as a whole build residential houses just like any other conventional property developer.

- In FY24, SIBS recorded revenue of RM2.6 billion, an exponential surge from the RM797 million recorded in FY23. This is attributed to commencement of plant 2 (production lines from just 1 line to 4 lines, and to the current 5 lines), coupled with the 80% utilisation rate in FY24.

- As of end of 2024, SIBS has a higher net gearing ratio at 79%, reflecting its growing business scale. However, its earnings have amply supported the increased debt levels, with a debt to EBIT ratio of 1.44 times (SIBS Sdn Bhd can theoretically repay its debt in 1.44 years’ time using EBIT).

- We continue to remain favourable on the issuer (SIBS), as its various automation in production line, Malaysia’s relatively lower labour costs and a disciplined expansion strategy, where production lines are only scaled up with firm order book backing, all of which continue to deliver strong results.

- Additionally, SIBS’ strategy of constructing modules for overseas markets gives the company a competitive edge, capitalising on the higher-priced housing markets abroad and lower labour cost (table 1).

Table 1: 2025 minimum wage by country (approx.)

- On the tariff front, we believe the direct impact on SIBS will be minimal, as the company does not currently serve the U.S. housing market. Additionally, with SIBS’ FY24 operating margin at 15%, we believe there is sufficient buffer to absorb any knock-on impact/indirect impact.

- The issuance offers a higher yield compared to other AA- rated bonds currently in the market, as shown in the table below. Together with its manufacturing base in Penang and sell overseas business model, as well as double digit operating margin, we believe this bond represents an attractive addition to investors’ portfolio.

Table 2: AA- rated bonds – yield comparison