MARC has lifted its MARCWatch Developing placement and reaffirmed IJM Corporation Berhad’s (“IJM”) RM300 million Commercial Papers/Medium-Term Notes (“CP/MTN”) Programme ratings at A+/MARC-1 with a stable outlook. The ratings reaffirmation is a reflection of the strong fundamentals inherent in the group (despite the challenges from a weak domestic construction sector and a softening property market) and, the success of its off shore projects. Moderating factors continue to be the mixed outlook for the domestic construction sector, property overhang and the inevitable risks associated with its foreign exposures.  The impact from the conditional take-over offer of Road Builder (M) Holdings Bhd (“RBH”), recently announced by the group and which is pending completion presents a further moderating influence. MARC had placed IJM’s ratings on MARCWatch Developing on 19 October 2006 following IJM’s announcement of its proposed RBH take-over. 

IJM is involved in construction, property development, manufacturing & quarrying, plantation and infrastructure projects.  Construction remains the group’s core revenue generator accounting for approximately 40% of total group revenue. The long awaited 9th Malaysia Plan (“9MP”) has brought some light to the construction industry, offering large and small scale projects, which is expected to benefit domestic construction players.

IJM is poised to become the country’s largest construction group once the take-over of RBH is completed. As at October 2006, IJM has an outstanding order book of RM4.8 billion of which 59% comprised local contracts. This order book is set to increase with the acquisition of RBH which has an estimated outstanding order book of RM1.16 billion. Rising building material prices however remains a major concern in the industry as it will erode already thin margins.

Despite the slowdown in the local property industry, the impact on the group has been cushioned by current ongoing developments that are focused in prime areas within Kuala Lumpur, Selangor, Penang, Johor and Sabah. IJM’s future property projects will focus on high rise commercial buildings and residential condominiums/apartments in populated areas like Penang, Puchong and Wangsa Maju. On the international front, the group achieved close to 100% sales in its Raintree Park housing project in Hyderabad, India. The success of this maiden housing project has led to the completion of two further joint ventures in the country, to develop two integrated townships with estimated gross sales values of RM530.0 million and RM600.0 million each.

The group’s manufacturing and quarrying division registered substantial growth in FY2006 with RM445.6 million in revenue (FY2005 annualised: RM345.8 million). The performance of the division is spearheaded by Industrial Concrete Products Berhad (“ICP”), a 66.3% owned subsidiary of IJM. Despite operating in the sluggish local construction sector, ICP managed to maintain its pre-stressed concrete spun (“PSC”) pile sales volume by exporting to Bangladesh, Singapore, North America and penetrated new markets in New Zealand and the Maldives. Domestically, with eight PSC pile plants having a total capacity of 1.32 million tonnes per annum, ICP is envisaged to benefit from the roll out of 9MP infrastructure projects. 

IJM Plantation Berhad (“IJMP”), a 49% subsidiary company of IJM represents the group in the plantation division.  The outlook for the oil palm industry is positive and IJMP’s operating performance is expected to grow in the near term supported by improving crop production and higher average crude palm oil prices. For FY2007, IJMP’s performance will be reflected in the group by virtue of the fact that IJM now holds more than 50% (including convertibles) of the equity in IJMP.

The infrastructure division reported a loss of RM13.0 million in FY2006 (FY2005 annualised: RM2.1 million) attributed significantly to the Swarna Tollway and Rewa Tollway projects in India, which reported a combined pre-tax loss of RM10.1 million due to initial low traffic volumes and higher finance expenses.

Overall, IJM’s performance in FY2006 has been relatively stable despite rising commodity prices, operating in an inflationary environment and volatile crude oil prices. This has been due to IJM’s diverse businesses and its operations in diverse geographical areas which have helped moderate adverse impacts.

Post the RBH take-over, IJM’s financial position is projected to strengthen with the incorporation of RBH’s infrastructure assets. On the other hand RBH’s high debt leverage ratio at 1.31 times (including a Government loan of RM391.9 million) as at September 2006 will spike IJM’s historically low leverage levels. Nevertheless, comfort is drawn from IJM’s experience in debt management.