Business Description
Capital World Limited is an integrated property developer, primarily focused on joint ventures with landowners to minimize initial capital outlay. Their key asset is an integrated development project, featuring the Capital City Mall in Tampoi, Johor Bahru, Malaysia. The construction of the mall was completed in April 2018. The company’s core operations are heavily centered in Johor Bahru, with a significant strategic emphasis on mixed-use property development.
Business Segments and Geographic Footprint:
- Core business operations are in integrated property development, with a primary focus on mixed-use developments.
- The company’s main geographic footprint is in Malaysia, particularly Johor Bahru.
Industry Position, Competitors, and Market Share
Capital World operates in the competitive property development industry, which includes prominent players in Malaysia and neighboring regions. The company’s market share is relatively small compared to other established real estate developers. Their primary competition comes from developers in Malaysia focusing on both residential and commercial real estate, particularly in rapidly growing urban centers like Johor Bahru.
Revenue Streams, Customer Base, Supply Chain, and Competitive Advantage
- Revenue Streams: The company’s revenue mainly stems from property sales within their integrated development project, Capital City Mall. However, due to cancellations of previously sold units, revenue for FY2024 was reported as negative.
- Customer Base: Capital World primarily targets retail and residential property buyers in the Johor Bahru region.
- Supply Chain: The company operates through joint ventures with landowners, which allows them to mitigate upfront capital expenditures.
- Competitive Advantage: Their main competitive edge lies in their joint venture model, which reduces initial capital needs. However, they are heavily reliant on the success of their existing development projects.
Financial Statement Analysis
1. Income Statement
- Revenue: For FY2024, the company recorded a negative revenue of RM4.7 million, compared to a negative RM3.8 million in FY2023. This was primarily due to the cancellation of sold units, which has significantly affected the top line.
- Gross Loss: The gross loss for FY2024 was RM3.6 million, up from RM2.6 million in FY2023. This indicates increasing operational challenges.
- General and Administrative Expenses: Administrative costs surged to RM42.7 million, driven by write-downs of inventory properties and non-current assets held for sale, totaling RM49.9 million.
- Impairments and Reversals: Impairments were reversed due to the cancellation of purchases by certain customers.
2. Balance Sheet
- Total Assets: The company’s total assets declined from RM420.6 million in FY2023 to RM332.0 million in FY2024, primarily due to reductions in cash (RM40.5 million) and inventory properties (RM14.9 million).
- Liabilities: Total liabilities dropped from RM194.0 million to RM175.8 million, mainly due to a reduction in trade payables by RM30 million.
- Liquidity Issues: The significant cash outflows and asset write-downs are concerning, signaling potential liquidity challenges.
3. Cash Flow Statement
- Operating Cash Flow: The net cash used in operating activities increased by RM47.1 million due to large payments, including a RM30 million settlement with Achwell Property Sdn Bhd.
- Investing Activities: Cash generated from investing activities fell by RM44.6 million, exacerbating the company’s cash position.
- Financing Activities: The company generated RM5.8 million from financing activities, mostly from convertible loan drawdowns.
Key Findings and Investor Considerations
- Negative Revenue: The company’s financial performance is alarming, with negative revenues and growing operational losses. This may indicate fundamental issues with their business model or market positioning.
- Asset Write-Downs: Large write-downs of properties suggest that the company’s real estate projects may not be yielding the expected returns, further jeopardizing future profitability.
- Liquidity Risks: The substantial decrease in cash reserves and heavy reliance on external financing indicate liquidity challenges, raising concerns about the company’s ability to meet short-term obligations.
- Industry Opportunities: Despite its struggles, the strategic location of its flagship project in Johor Bahru offers potential, especially with infrastructural developments like the Johor Bahru-Singapore Rapid Transit System (RTS).
- Share Resumption: The approval for the resumption of share trading on the Singapore Exchange in October 2023 is a positive development, offering liquidity to existing shareholders.
Dividend Information
There is no mention of any proposed dividend or special dividend for FY2024, which is expected given the company’s financial challenges.
Special Activities to Improve Profitability
Capital World has entered into a non-binding agreement with Growth Development & Management Sdn Bhd for the sale of Development Rights and Beneficial Ownership of its 5 Towers. The partnership with MK Mustafa Sdn Bhd is expected to revitalize the Capital City Mall, but the impact on profitability remains uncertain.
Recommendations
For Current Shareholders:
- Hold with Caution: If already holding the stock, it may be prudent to maintain the position for now, especially considering the company’s efforts to revitalize its project and the resumption of trading. However, be prepared for volatility and continued losses in the short term.
For Potential Investors:
- Avoid for Now: Given the company’s negative financial performance, shrinking cash reserves, and operational challenges, it is advisable to avoid initiating new positions until there is more concrete evidence of a turnaround.
Disclaimer
This report is based on the company’s financial statements and is not a recommendation to buy or sell securities. Investors should conduct their own due diligence and consult with a licensed financial advisor before making any investment decisions.
