Published on 17 Oct 2023.
RAM Ratings has affirmed the AA3/Stable rating of IJM Corporation Berhad’s (IJM Corp or the Group)’s RM3 bil Sukuk Murabahah Programme. We have also assigned respective AA3(s) and P1(s) ratings to its proposed Islamic Medium-Term Notes Programme and proposed Islamic Commercial Papers Programme (collectively known as proposed Sukuk Murabahah Programmes), with a combined limit of RM5.0 bil under its funding vehicle, IJM Treasury Management Sdn Bhd.
The affirmation reflects expectations that the Group’s credit metrics will remain commensurate with its rating on the back of healthy earnings visibility from its outstanding construction order book and unbilled sales. IJM Corp’s diversified business profile and track record in the local construction and property sectors are key rating strengths. These factors are complemented by a healthy balance sheet and strong liquidity and financial flexibility.
The Group clinched a respective RM1.5 bil and RM654 mil of new construction contracts in FY Mar 2023 and 1Q FY Mar 2024, which boosted its outstanding order book to RM4.75 bil as at 31 August 2023 (RM4.81 bil as of 25 November 2022). The Group also recently secured a RM1.26 bil job for the Rapid Transit System Link between Johor Bahru and Singapore. The planned acquisition of Pestech International Berhad, when successfully completed, will enable IJM Corp to tap into Pestech’s niche capabilities in rail electrification and signalling as well as electrical transmission. Some RM2.7 bil of property and land sales in fiscal 2023 (fiscal 2022: RM2.5 bil) sustained IJM Corp’s unbilled sales at a robust RM3.0 bil as at end-March 2023 (end-September 2022: RM3.1 bil).
IJM Corp’s core pre-tax profit (after excluding unusual items) leapt 45% in FY Mar 2023 as the stronger profit showing of its property and industry divisions offset weaker construction and infrastructure earnings. The performance exceeded our projections. Stronger property sales and progress billings, improved margins from ongoing projects and a gain from land sale gave the property segment a leg up while the industry division benefited from better selling prices and plant productivity. Construction earnings declined as some major projects were completed while newer jobs are still in the early stages of construction. Higher resurfacing cost for the Group’s Indian highway weighed on its infrastructure segment.
IJM Corp’s debt level decreased to RM5.87 bil as at end-March 2023 and RM5.78 bil as at end-June 2023 (end-March 2022: RM6.01 bil) in the absence of major capital expenditure (capex), which was slightly lower than expected. Adjusted funds from operations debt coverage (FFODC) was sturdier at 0.19 times in FY Mar 2023 (FY Mar 2022: 0.15 times). These ratios exclude non-recourse infrastructure debt and earnings, which are mainly concession-related, ring-fenced and have no recourse to the holding company.
Going forward, IJM Corp’s profit will be largely stable this year as land sales moderate and construction earnings take time to pick up. Profit is expected to improve in FY Mar 2025, backed by earnings visibility from a large outstanding construction order book and unbilled property sales as well as continued contributions from the industry and infrastructure segments. The Group projects debts to increase to RM6.60 bil-RM7.45 bil in the next couple of years to fund land acquisitions, a highway extension and port expansion. The planned capex can nevertheless be covered by internal cash generation. Overall, IJM Corp’s adjusted FFODC is anticipated to hover at 0.12 times-0.15 times over the next two years, levels that are supportive of its current rating.
Moderating the ratings are the Group’s contingent exposure from a 41% stake in the delayed West Coast Expressway and exposure to foreign exchange and interest rate movements, given its foreign currency-denominated floating rate debts.
IJM Treasury Management Sdn Bhd is the funding conduit for the issuance of the Islamic Commercial Papers and Islamic Medium-Term Notes under the proposed Sukuk Murabahah Programmes. The issue ratings reflect the credit profile of IJM Corp as the provider of an irrevocable and unconditional guarantee based on the Shariah principle of Kafalah, in favour of the Sukuk Trustee for the benefit of the holders of the proposed Sukuk Murabahah Programmes.
Karin Koh, CFA
(603) 3385 2508
Thong Mun Wai
(603) 3385 2522
(603) 3385 2500
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Ratings on IJM Corporation Berhad