Published on 31 Dec 2020.
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. The two-notch differential from the Group’s rating indicates the risk of deferrable profit distributions and the deeply subordinated right of the sukukholders to claims in the event of insolvency. The (s) modifier reflects the issuance’s credit profile, which has been enhanced beyond IJM Land’s own credit standing by the subordinated guarantee.
IJM Land is the property development arm of IJM Corp, with over three decades of experience and strong brand visibility. IJM Land is viewed as being 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. The Company has on average contributed a respective 26.1% and 35.9% of the Group’s revenue and pre-tax profit in the last four fiscal years. Financial support from IJM Corp has, accordingly, been forthcoming via unsecured advances to the Company.
On a stand-alone basis, IJM Land’s revenue jumped 50% y-o-y to RM2.1 bil in FY Mar 2020 (FY Mar 2019: RM1.4 bil), boosted by the handover of its UK project and progressive recognition of existing projects. In tandem, the Company’s operating profit before depreciation, interest and tax (OPBDIT) improved to RM240.8 mil (FY Mar 2019: RM207.7 mil). Unbilled sales stood at a substantially lower RM1.1 bil as at end-March 2020 (end-March 2019: RM2.1 bil) in the absence of other overseas project. That said, the Company’s domestic property sales are still encouraging and likely to remain supportive of earnings going forward. IJM Land’s good earnings visibility is also underpinned by a sizeable undeveloped land bank of about 4,996 acres as at end-March 2020, with a potential GDV of close to RM54.8 bil.
Despite some improvement, the Company’s financial profile stayed relatively weak with a gearing ratio of 0.58 times as at end-March 2020 (end-March 2019: 0.71 times) and funds from operations debt coverage (FFODC) of 0.09 times in FY Mar 2020 (FY Mar 2019: 0.04 times). Notably, the bulk of its debts are unsecured advances from IJM Corp with no fixed repayment date. Excluding these intercompany loans, gearing and FFODC would stand at a respective 0.27 times and 0.20 times. On the other hand, the Company’s liquidity position remained comfortable, with RM324.8 mil of unrestricted cash reserves against RM460.6 mil of short-term obligations (excluding inter-company loans).
IJM Land is inevitably exposed to the cyclical nature of the property sector, the performance of which typically correlates with the general wellbeing of the economy. The sector had shown signs of recovery in 2019 with a higher y-o-y residential property volume (+6%) and transaction value (+5%), largely aided by the Home Ownership Campaign 2019 (HOC). However, the rebound has been derailed by the ongoing pandemic and the resultant economic slowdown, which saw sales volume and value plunging a respective 25% and 26% in 1H 2020. Given the reinstatement of the HOC, we expect property sales to be stronger in 2H 2020, although the outlook is still challenging amid the tougher economic climate and the recent resurgence of Covid-19 infections.
Tan Shu Xuan
(603) 3385 2497
(603) 3385 2577
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Ratings on IJM Land Berhad