Published on 31 Dec 2020.
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 of the ratings reflects the Group’s better-than-expected credit metrics in fiscal 2020 and our expectation that it will be able to weather the challenging operating environment, backed by its diversified business profile.
The Group’s profit performance was better than anticipated in FY Mar 2020. Its pre-tax profit excluding several unusual items improved 23%, lifted by stronger property and plantation earnings after the completion of its Royal Mint Gardens project in the UK, healthier CPO prices and more robust fresh fruit bunch production (+9%). Construction profits were mainly steady, underpinned by a healthy outstanding order book. On the contrary, the infrastructure segment’s pre-tax profit (excluding unusual items) ebbed 5% as poorer traffic volumes in 4Q FY Mar 2020 during the movement control order (MCO) had offset higher port earnings. Concurrently, the downtrend in the manufacturing and quarrying operations’ profitability continued, as stiff competition and the muted construction and property sectors had suppressed selling prices and sales volumes.
IJM Corp’s debts rose 6% y-o-y to RM7.41 bil as at end-March 2020, driven by additional borrowings for its construction, plantation and port operations. Nevertheless, its adjusted funds from operations debt coverage (FFODC) broadened to a better-than-expected 0.16 times, thanks to its healthier profitability (FY Mar 2019: 0.12 times). Our assessment excludes non-recourse infrastructure debts (about RM1.97 bil) and earnings from the Group’s ratio calculations because these are largely concession-related, ring-fenced and have no recourse to the holding company.
In 1Q FY Mar 2021, the Group’s pre-tax profit tumbled 35% y-o-y as its construction earnings plunged 60% while most of its other business divisions incurred losses due to the MCO. Construction activities had mostly been halted while property sales galleries as well as manufacturing and quarry operations had been stalled. Although its toll assets had been allowed to keep operating, traffic volumes had been adversely affected. IJM Corp’s profit performance is anticipated to pick up in the next few quarters as the economy gradually recovers. All said, IJM Corp’s full-year pre-tax earnings are estimated to shrink by about a quarter in FY Mar 2021, before picking up in FY Mar 2022.
Despite its weaker profit performance, we expect IJM Corp’s adjusted FFODC to come in at about 0.13 times over the next couple of years, which is supportive of its rating. The Group’s RM5.2 bil outstanding order book and RM1.10 bil of unbilled sales are anticipated to offer some earnings support, with upside stemming from major infrastructure jobs under Budget 2021. When implemented, these will have positive spill-over effects on the Group’s construction and pile-manufacturing divisions.
IJM Corp’s debt level is envisaged to stay relatively stable at around RM7.50 bil (end-March 2020: RM7.41 bil), as most major capital expenditure has been deferred to conserve cash amid the COVID-19 pandemic. Given the Group’s adequate debt cover, there is limited room for further material leveraging without the requisite earnings and cashflow.
Karin Koh, CFA
(603) 3385 2508
(603) 3385 2577
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Ratings on IJM Corporation Berhad