Bright earnings prospects for IJM Corp, says RAM Ratings

KUALA LUMPUR: RAM Rating Services Bhd sees bright earnings prospects for IJM Corporation Bhd, underpinned by mult-billion ringgit of unbilled property sales and orderbook.

The ratings agency said on Friday the infrastructure-property based group had RM1.6bil of unbilled property sales and a record-high order book of over RM6bil.

IJM Corp was recently awarded RM2.8bil of jobs under the long-awaited RM5bil West Coast Expressway (WCE) project, RM1.2bil of Kuantan Port upgrading works and several private jobs valued at around RM1.8bil. 

RAM Ratings co-head infrastructure & utilities, Davinder Kaur Gill said: “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.” 

The ratings agency had reaffirmed the AA3 rating of IJM Corp’s RM3bil Sukuk programme, with a stable outlook. 

It pointed out IJM Corp’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 considered its exposure to 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 exposes IJM to contingent liabilities given the Group’s roles as a turnkey contractor and 40%-stakeholder in the concession company.

RAM Rating said Notwithstanding a lower turnover, IJM’s pre-tax profit increased 15.7% on-year in the nine-months ended March 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,” it said.

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