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RAM Ratings affirms IJM Land’s A2(s)/Stable issue rating
Published on 27 Sep 2023.
RAM Ratings has affirmed 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 rose to RM1.5 bil in FY Mar 2023 (FY Mar 2022: RM1.2 bil) due to strong property sales, the higher work progress of ongoing projects and increased industrial land sales. The Company’s operating profit before depreciation, interest and tax margin grew to 26.8% (FY Mar 2022: 10.9%), given the higher margins of ongoing projects, a gain on land sales and the finalisation of costs for some completed projects. Unbilled sales were a higher RM3.0 bil as at end-March 2023 (end-March 2022: RM2.3 bil), backed by the healthy take-up rates of ongoing projects, which will be supportive of near-term earnings.
IJM Land’s debt servicing ability improved on account of stronger funds from operations debt coverage (FFODC) of 0.10 times on the same date (end-March 2022: 0.04 times). The Company’s debt level remained stable at RM2.6 bil but gearing weakened to 0.53 times (end-March 2022: 0.50 times) owing to the acquisition of remaining shares in subsidiary Radiant Pillar Sdn Bhd, which led to reduced non-controlling interests and, consequently, a smaller total equity base. 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 0.21 times and 0.26 times, respectively.
IJM Land is inevitably 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 was up a respective 22.6% and 22.3% in 2022 despite the absence of the Home Ownership Campaign. This was attributed to pent-up demand for homes, improving labour market conditions and supportive government initiatives amid strong economic growth. We expect the property market to moderate in 2023, considering an expected slowdown in economic growth.
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 very closely linked to its parent, based on RAM’s criteria for parent-subsidiary rating linkage, by virtue of the two entities’ strong operational ties, their aligned business directions and the Group’s strong track record of support for the Company. The Company has on average contributed a respective 28% and 51% 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.
Analytical contacts
Johan Faizul
(603) 3385 2518
johan@ram.com.my
Karin Koh, CFA
(603) 3385 2508
karin@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2023 by RAM Rating Services Berhad
