Published on 11 Oct 2019.
RAM Ratings has reaffirmed the A2(s)/Stable rating of IJM Land Berhad’s (the Company) Perpetual Sukuk Programme of RM2.0 bil in nominal value based on the Shariah Principle of Musharakah. The Perpetual Sukuk comes with a Subordinated Guarantee from the Company’s parent, IJM Corporation Berhad (IJM Corp or the Group), which is rated AA3/Stable by RAM.
The sukuk rating is reflective of the unconditional and irrevocable subordinated guarantee from IJM Corp, and is two notches below the Group’s rating. This indicates the risk of deferrable profit distributions and the deeply subordinated rights of the sukuk holders to claims in the event of insolvency. The (s) modifier reflects IJM Land’s fundamental credit profile, which has been enhanced beyond its own credit standing.
With more than thirty years’ experience and track record in the property sector, IJM Land remains a key subsidiary to IJM Corp. The Company continues to play a pivotal role in driving the Group’s property development business. IJM Land is deemed very closely linked to its parent, based on RAM’s criteria for parent-subsidiary rating linkage, by virtue of the strong operational ties between the two entities, their aligned business direction and the Group’s strong track record of support for the Company. “IJM Land is one of the core entities within the Group and has been contributing on average 27% of the IJM Corp’s earnings in the last three years,” highlights Davinder Kaur Gill, co-head of RAM’s Infrastructure and Utilities Ratings.
On a stand-alone basis, IJM Land’s financial performance and credit profile have been gradually improving, supported by its better showing in FY Mar 2019. Its top line was lifted 21.2% to RM1.43 bil (FY Mar 2018: RM1.18 bil), backed by healthier sales and more advanced work progress for its ongoing developments. The Company’s operating profit before depreciation, interest and tax (OPBDIT) also strengthened 40.5% to RM207.67 mil (FY Mar 2018: RM147.77 mil).
Moving forward, IJM Land’s earnings visibility and near-term performance are anticipated to be sustained by its RM2.1 bil of unbilled sales (as at end-March 2019), ongoing projects with a gross development value (GDV) of RM5.0 bil, and a vast undeveloped land bank spanning some 5,470 acres, with a potential GDV of close to RM52.1 bil. The rating is, however, moderated by IJM Land’s exposure to sector concentration risk and weak financial profile.
The Company’s financial profile remained relatively weak despite a more moderate gearing ratio of 0.71 times as at end-March 2019 (end-March 2018: 0.81 times). Its funds from operations debt coverage (FFODC) stayed thin at 0.04 times in FY Mar 2019 (FY Mar 2018: 0.03 times). On the other hand, its liquidity was slightly better, with RM728.99 mil of cash and cash equivalents against RM403.20 mil of short-term obligations (excluding inter-company loans).
IJM Land is inevitably exposed to the cyclical nature of the property sector, which typically correlates with the general wellbeing of the economy. The sector has been showing signs of recovery of late and the extension of the Home Ownership Campaign is envisaged to help ease the overhang of residential properties. That said, we remain cautious about the ability of potential buyers to secure financing given the tighter access to credit. Nevertheless, we have maintained a stable outlook on the residential property sector this year, with the expectation that the market will gradually pick up after several disappointing years.
Yip Chee Meng
(603) 3385 2516
(603) 3385 2577
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Ratings on IJM Land Berhad