Published on 23 Dec 2021.
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 the Group’s better than anticipated credit metrics in FY Mar 2021 and expectations that overall credit metrics will remain commensurate with the rating on the back of decreasing debt levels. Although COVID-19-related disruptions over the current fiscal year will cause a blip in its performance for FY Mar 2022, we expect a gradual improvement in the subsequent year as restrictions ease. IJM Corp’s diversified business profile, its established track record within the domestic construction and property sectors, and strong financial flexibility and liquidity further support the rating.
The divestment of the Group’s plantations arm (completed in September 2021) is credit neutral. The exercise will enable IJM Corp to streamline the operations of its synergistic core businesses of construction, property and infrastructure. The resultant lower business diversity is offset by the Group’s reduced debts post-divestment. Plantations-related debts stood at RM719.43 mil as at end-March 2021. The longer-term impact on the Group’s financial profile hinges on the utilisation of the RM1.53 bil sale proceeds. About half of the sum has been earmarked for future investment opportunities.
IJM Corp’s revenue was down 15% at RM5.62 bil in FY Mar 2021 as the pandemic affected its property, manufacturing and quarrying, construction and toll road businesses. This was compounded by the absence of a contribution from the Group’s UK property project following its completion in FY Mar 2020. The better performance of the Group’s plantation segment amid loftier crude palm oil (CPO) prices partially balanced out the decline. IJM Corp’s pre-tax profit leapt 51%, boosted by several extraordinary items. Excluding these, pre-tax profit would have fallen about 13% due to the poorer showing of most segments, apart from plantations and port. Overall, however, the Group’s pre-tax performance exceeded our projections.
Debts eased 2% y-o-y to RM7.29 bil as at end-March 2021, contracting further to RM6.27 bil as at end-September 2021, in the absence of plantations-related debts and as major capital expenditure was deferred amid the crisis. As such, the Group’s adjusted funds from operations debt coverage (FFODC) was better than expected at 0.19 times in FY Mar 2021 (FY Mar 2020: 0.16 times). Our assessment excludes non-recourse infrastructure debt and earnings from IJM Corp’s ratio calculations because these are mainly concession-related, ring-fenced and have no recourse to the holding company.
Excluding the pre-tax profit from discontinued operations, the Group’s pre-tax profit fell 37% y-o-y to RM90.43 mil in 1H FY Mar 2022 as the June lockdown has disrupted activities for most of 2Q FY Mar 2022. Its manufacturing and quarrying division bucked the trend, returning to the black during the period due to higher deliveries of piles, quarry products and ready-mixed concrete, stronger margins and a RM6.98 mil gain on disposal of subsidiary. Going forward, we estimate IJM Corp’s core pre-tax earnings to diminish by about a third in FY Mar 2022 before turning the tide the following year. Earnings visibility is supported by an outstanding construction order book of RM4.51 bil (as at end-September 2021) and RM1.40 bil of unbilled property sales (as at end-June 2021).
The Group’s debt level is envisaged to trend downwards in the absence of major capital expenditure that will necessitate debt funding in the next couple of years. We expect IJM Corp’s adjusted FFODC to hover around 0.13 times-0.17 times, which is supportive of its current issue rating. The lower end of the band is, however, weaker than that of some AA3-rated corporates in RAM’s portfolio.
Karin Koh, CFA
(603) 3385 2508
Thong Mun Wai
(603) 3385 2522
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