Hi @CottageLove,
A warm welcome to the Bunnings Workshop community and thank you for your question.
A couple of questions.
Has the source of the water damage been dealt with? And are these walls inside the house or outside?
If the source of the water damage has not been dealt with, then you should prioritise fixing that before any cosmetic repairs. If it is still an active issue, then repairing your walls will be a waste as they are likely to receive further water damage in future.
Once the water damage has been dealt with, then the process you have mentioned is essentially what should be done.
Start by cleaning the walls with sugar soap to remove any dirt, grease or grime that can affect the adhesion of paints and primers.
After cleaning with sugar soap, give everything a light sand with 120-grit sandpaper. This can be done by hand, but a random orbital sander would help speed things up. There is no need to remove all the existing paint, just give it a light sand to remove any contaminants the sugar soap missed and make the surface smooth for the next coat.
After this, put on some gloves, long protective clothing and eye protection, then use a utility knife to cut along the cracking lines between the boards. There should be a gap filler here and the aim is to widen the gap or remove the gap filler altogether. Once the gaps have been widened or the filler has been removed, use an appropriate gap filler. If it is indoors, use No More Gaps Interior. If it is outdoors, use No More Gaps Exterior. Check out How To Silicone a Gap for some guidance on this step.
You'll want to confirm whether the existing paint is water or oil-based. Dampen a cloth with methylated spirits or rubbing alcohol and rub a small, inconspicuous area of the painted surface. If the paint comes off onto the cloth, it is likely water-based, as water-based paints soften and dissolve with alcohol. If nothing happens and the paint remains intact, it is likely oil-based, which does not react to alcohol in the same way. Use water-based paint if it is water-based and oil-based if it is oil-based.
As the paint is well adhered to the timber, there is no real need for a primer. The main thing is to use internal or external paint based on the location and water or oil-based, depending on the test I have mentioned above.
Let me know what you think and if you have further questions, please don't hesitate to ask.
Jacob
