RAM Ratings reaffirms IJM’s AA3 rating with a stable outlook

Published on 03 April 2015

RAM Ratings has reaffirmed the AA3 rating of IJM Corporation Berhad’s (the Group) RM3 billion Sukuk Programme, with a stable outlook. The Group’s rating reflects its diversified business and resilient performance as well as healthy balance sheet, complemented by the strong financial flexibility afforded by its sizeable land bank. IJM’s rating also considers its exposure to West Coast Expressway (WCE) which carries with it concentration and execution risks given the sheer size and complexity relative to the other construction projects in its porfolio. The WCE project will also expose IJM to contingent liabilities given the Group’s roles as a turnkey contractor and 40%-stakeholder in the concession company.

Supported by RM1.6 billion of unbilled property sales and a record-high order book of over RM6 billion, IJM’s earnings prospects appear bright. The Group was recently awarded RM2.8 billion of jobs under the long-awaited RM5 billion WCE project, RM1.2 billion of Kuantan Port upgrading works and several private jobs valued at around RM1.8 billion. “While we do not preclude near-term softening in IJM’s property sales and the relevant division’s earnings amid the decelerating local property market, upside in construction earnings and the Group’s gradually improving plantation operations should help cushion any potential weakening,” observes Davinder Kaur Gill, Co-Head Infrastructure & Utilities.

Notwithstanding a lower turnover, IJM’s pre-tax profit increased 15.7% y-o-y in 9M FY Mar 2015 (excluding divestment gains from the Trichy Tollway in India and other non-recurring items), attributable to the broader margins of its construction and plantation divisions.  Its OPBDIT margin remained strong at 24.8% while its gearing ratio stayed relatively unchanged as at end-December 2014. Despite rising debt levels to fund the purchase of new land parcels, concession assets and plantation development, this is balanced by a correspondingly larger equity base on account of healthier profit accretion. The Group’s debt-servicing ability is deemed adequate, with funds from operations debt cover of 0.16 times. Assuming RM1 billion of future capex, IJM’s gearing ratio may climb up to 0.75 times (from 0.67 times as at end-December 2014), although its FFODC should remain stable.

IJM has to date obtained all the necessary approvals in relation to the privatisation of IJM Land Berhad. As the purchase consideration will be mainly funded by a share swap, it is not to expected to weigh on the Group’s financials.

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Tan Han Nee

(603) 7628 1023

hannee@ram.com.my