Published on 18 Jan 2023.
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 rating reflects expectations that the Group’s credit metrics will remain commensurate with its rating on the back of earnings visibility from outstanding construction order book and unbilled sales while debt levels are anticipated to be relatively flat. Its diversified business profile and track record within the local construction and property sectors are key rating strengths. This is complemented by a healthy balance sheet and strong liquidity and financial flexibility.
The Group successfully clinched several new contracts during the year, boosting its outstanding order book to RM4.81 bil as of 25 Nov 2022 (end-September 2021: RM4.51 bil). The Group also recorded markedly stronger property sales in FY Mar 2022 (RM2.5 bil, +47% y-o-y), pushing unbilled sales to a robust RM3.1 bil as at end-September 2022 (end-June 2021: RM1.40 bil). Meanwhile, its industry division turned around after business rationalisation and cost optimisation efforts.
IJM Corp’s revenue declined 6% in FY Mar 2022, as the pandemic affected the work progress of its construction segment. Its pre-tax profit fell 38% due to impairment on land and toll assets. Excluding the unusual items, IJM Corp’s pre-tax profit is estimated to be 19% higher, largely premised on the turnaround of its industry segment. The Group’s core pre-tax performance also exceeded our projections, which had assumed three to four months of lost income due to the pandemic disruptions.
Core profit (after excluding unusual items) was much higher at an estimated RM263.81 mil in 1H FY Mar 2023 (1H FY Mar 2022: RM94.08 mil, adjusted), lifted by stronger earnings particularly for its property and industry segments amid normalised operations, albeit still below pre-pandemic levels. IJM Corp’s profit performance is expected to be on an uptrend over the next few years, backed by earnings visibility from its large outstanding construction order book and unbilled property sales, coupled with boost from land sales in the next year or two.
IJM Corp’s debt level was on a declining trend since FY Mar 2020 due to the deconsolidation of debts of its plantations arms (disposed in September 2021) and debt repayment. The Group’s adjusted funds from operations debt coverage (FFODC) was better than expected at an adequate 0.15 times in FY Mar 2022 due to lower than anticipated debts (FY Mar 2021: 0.12 times). Our assessment excludes non-recourse infrastructure debt and earnings from ratio calculations because these are mainly concession-related, ring-fenced and have no recourse to the holding company. The Group’s debt level is expected to be largely flat going forward, with no major capex that will necessitate substantial debt funding in the next couple of years. We expect IJM Corp’s adjusted FFODC to hover between 0.15-0.20 times, which is supportive of its current rating.
Moderating its ratings are the Group’s contingent exposure arising from its 41% stake in the delayed West Coast Expressway and exposure to foreign exchange movements due to its foreign-currency-denominated debts.
Karin Koh, CFA
(603) 3385 2508
Thong Mun Wai
(603) 3385 2522
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Ratings on IJM Corporation Berhad