Published on 18 Jan 2023.
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), whose senior debt is rated AA3/Stable by RAM.
The sukuk rating is reflective of the unconditional and irrevocable guarantee extended by IJM Corp; the guarantee ranks pari passu with IJM Corp’s subordinated obligations. The risk of deferrable profit distributions is reflected in IJM Land’s Perpetual Sukuk’s rating as well. Overall, this leads to a two-notch differential between the Perpetual Sukuk’s rating from the Group’s senior debt rating. 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 remained flat at RM1.2 bil in FY Mar 2022 (FY Mar 2021: RM1.2 bil) due to delays in work progress during lockdowns which disrupted the recognition of earnings. The Company’s operating profit before depreciation, interest and tax (OPBDIT) margin narrowed to 10.9% (FY Mar 2021: 14.3%) as a result of a larger impairment of inventories and higher unrealised foreign exchange losses. On a positive note, IJM Land achieved record property sales of RM2.5 bil (FY Mar 2021: RM1.7 bil). Unbilled sales climbed to RM3.1 bil as at end-September 2022 (end-March 2021: RM1.4 bil), backed by the healthy take-up rates of ongoing projects and this would support the Company’s near-term earnings.
The Company’s gearing ratio eased to 0.50 times as at end-March 2022 (end-March 2021: 0.55 times) as stronger operating cashflows allowed the continued reduction of its debt levels. Funds from operations debt coverage (FFODC) however stayed weak at 0.04 times (end-March 2021: 0.06 times) owing to lower earnings. Notably, the bulk of debts (i.e. 58% as at end-March 2022) comprised unsecured advances from IJM Corp (i.e. 48% of total debts) without a fixed repayment date as well as other intercompany borrowings. Excluding these intercompany borrowings, FFODC and gearing would stand at a better 0.10 times and 0.21 times, respectively.
IJM Land is inevitably exposed to the cyclical nature of the property sector, the performance of which typically correlates with the general health of the economy. The Malaysian residential property market’s transaction value and volume increased a respective 16.7% and 3.9% despite the pandemic-induced lockdowns in 2021 premised on a low base effect and a boost from the Home Ownership Campaign (HOC). Pent-up demand for homes then led to a double-digit uptick in both transaction value and volume of 32.2% and 26.3% in 1H2022, respectively. We expect 2H 2022 residential property transactions to be lower due to rising costs of living and financing eroding the purchasing power of home buyers. The same factors will weigh on the residential market’s performance in 2023 in view of the government’s plans to rationalise subsidies.
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. IJM Land on average contributed a respective 27% and 39% 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 to the Company.
Karin Koh, CFA
(603) 3385 2508
Thong Mun Wai
(603) 3385 2522
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Ratings on IJM Land Berhad