Published on 11 Oct 2019.
RAM Ratings has reaffirmed the AA3/Stable rating of IJM Corporation Berhad’s (IJM Corp or the Group)’s RM3 bil Sukuk Murabahah Programme. The reaffirmation reflects our expectation that IJM Corp’s credit fundamentals will remain intact, anchored by its diversified business segments, adequate debt coverage and gradual earnings recovery amid a challenging economic landscape.
The Group’s pre-tax profit came in at RM647.99 mil in fiscal 2019, compared to our projection of RM633.00 mil. This was supported by the better performance of its property and infrastructure divisions, which offset the poorer showing of the local construction sector, intense competition in the concrete piles segment, and persistently weak commodity prices that have been plaguing the plantation division.
As at end-June 2019, the Group’s outstanding construction order book stood at RM6.1 bil, which should sustain it through the next few years. IJM Corp’s earnings will remain underscored by its sizeable land bank and status as an established township developer. Its recent launches still garnered strong take-up rates, especially for affordable and mid-range properties although its property division remains weighed by high inventory of unsold stock.
Earnings contributions from the infrastructure division are envisaged to stay commendable, supported by the expansion of Kuantan Port and developments within the Malaysia-China Kuantan Industrial Park (MCKIP). On the flip side, IJM Corp’s building materials business will keep facing earnings pressure while its plantation division is expected to remain challenged by persistently weak CPO prices as well as hefty operating costs.
“While IJM Corp will continue to face challenges amid the economic uncertainties confronting its core businesses, the Group’s business diversification will provide long-term resilience against the cyclicality of individual segments,” explains Davinder Kaur Gill, co-head of RAM’s Infrastructure and Utilities Ratings.
As at end-March 2019, IJM Corp’s debts summed up to RM7.0 bil, approximately 28.2% of which were concession-related and had no recourse to the holding company. After stripping off non-recourse debts and earnings from its infrastructure subsidiaries, the Group’s adjusted funds from operations debt coverage (FFODC) would stand at 0.12 times in FY Mar 2019. Over the near term, its adjusted FFODC is anticipated to hover around an average of 0.12 times over the next two years, a level that we still deem adequate for now, taking into considerations its expected gradual recovery in line with the pick-up in performance for its key business units. Any further drawdown from subsidiary IJM Land Berhad’s Perpetual Sukuk to repay borrowings from IJM Corp could improve the Group’s adjusted FFODC, as the Perpetual Sukuk qualifies for a 50% equity credit benefit under RAM’s methodology for hybrid capital.
That said, the Group is still more leveraged than some of RAM’s AA3-rated corporates. Any acquisition or project that necessitates a corporate guarantee from IJM Corp, or borrowing beyond our expectations, may further strain its financial position unless accompanied by improvements in its earnings and cashflow.
Yip Chee Meng
(603) 3385 2516
(603) 3385 2577
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Ratings on IJM Corporation Berhad