Published on 23 Dec 2021.
RAM Ratings has reaffirmed the A2(s)/Stable rating of IJM Land Berhad’s (the Company) RM2.0 bil Perpetual Sukuk Programme. 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 extended by IJM Corp. The two-notch differential from the Group’s rating indicates the risk of deferrable profit distributions and the sukukholders’ deeply subordinated rights 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.
On a standalone basis, IJM Land’s revenue normalised to RM1.2 bil in FY Mar 2021 (FY Mar 2020: RM2.1 bil) in the absence of other overseas projects following the completion of its UK property project the previous year. Its topline performance was also partly weighed down by lockdown-induced operational disruptions. The Company’s operating profit before depreciation, interest and tax (OPBDIT) margin was a better 12.8% (FY Mar 2020: 11.2%), aided by a lower inventory write-down and reduced operating expenses. Healthy unbilled sales remain supportive of near-term earnings, standing at a higher RM1.4 bil as at end-June 2021 (end-March 2020: RM1.1 bil) on the back of encouraging take-up rates of ongoing projects.
Although improved, IJM Land’s debt servicing ability stayed weak with a funds from operations debt coverage (FFODC) of 0.05 times in FY Mar 2021 (FY Mar 2020: 0.08 times). Gearing trended lower to 0.55 times as at end-March 2021 (end-March 2020: 0.58 times). The bulk of the Company’s debts are unsecured advances from IJM Corp with no fixed repayment date. Excluding these intercompany borrowings, FFODC and gearing would be a better 0.11 times and 0.24 times, respectively.
IJM Land is exposed to the cyclicality of the property sector, the performance of which typically correlates with the general health of the economy. The local residential property market’s transaction value and volume shrank a respective 9.0% and 8.6% in 2020, in tandem with the country’s GDP contraction amid a health crisis. While sales value and volume rebounded a respective 34.8% and 22.2% in 1H 2021, this was largely attributed to the low base in the previous corresponding period. The expected rebound of the economy following an accelerated vaccination rate and looser movement restrictions will spur the housing sector’s growth but the primary housing market is likely to be affected by the expiry of the Home Ownership Campaign by end-2021. We draw comfort from IJM Land’s continued focus on affordable and mid-range properties, for which demand remains resilient.
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. This is premised on the strong operational ties between the two entities, their aligned business direction and the Group’s solid track record of support for the Company. IJM Land has on average contributed a respective 27% and 35% of the Group’s revenue and pre-tax profit in the last three fiscal years. Financial support from IJM Corp has, accordingly, been forthcoming via unsecured advances as well as the subordinated guarantee on the Perpetual Sukuk.
Tan Shu Xuan
(603) 3385 2497
Karin Koh, CFA
03 3385 2508
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Ratings on IJM Land Berhad