Wednesday, Jun 27, 2001
MARC has affirmed IJM Corporation Berhad’s (IJM) corporate debt rating of A (single A flat). The affirmed rating acknowledges the favourable competitive position of the group’s core construction business, the strengthening of its business profile over the past few years as a result of initiatives undertaken by IJM to further grow and diversify its revenue sources, its broadened geographic coverage and its relatively strong financial profile. Limiting credit considerations include the inherent cyclicality of the construction industry, the increased political and economic risks associated with the group’s infrastructure ventures in emerging markets and the current weak fundamentals of the plantation business.
Established in 1983, IJM is one of the largest and most diversified construction groups in the country. IJM’s activities range from construction, properties, manufacturing and quarrying to plantations and infrastructure projects. On the construction front, IJM’s ability to undertake the whole spectrum of construction works, favourable track record, financial resources and lean cost structure places the group in a good position to weather downturns in the construction cycle. IJM’s growing participation in construction projects outside Malaysia helps cushion its earnings from the adverse effects of the difficult domestic economic conditions. The group’s large construction order book of over RM1 billion should adequately sustain the construction division for the next two years. IJM’s palm oil business continues to generate positive operating cash flow despite current pricing weakness. Plantation segment earnings, meanwhile, remain vulnerable to a protracted period of depressed crude palm oil (CPO) prices against the backdrop of continued excess supply in the global CPO market.
On the international front, IJM’s focus is on contracting and construction management as well as building a portfolio of geographically dispersed infrastructure investments in emerging markets. Recent activities in international markets include investments in a power plant in India, a water treatment concessionaire in Vietnam, and tolled highways in Argentina and China. The overseas ventures, while providing the group with geographical diversity and the opportunity to earn higher returns, are also exposed to substantial political and local currency risks. Risk mitigation techniques employed by the group include allocating the construction and operational risks to local reputable contractors and operators; managing the group’s financial exposure via joint venture investments with other equity investors and securing payment obligations either from the foreign government and/or local financial institutions. The downside risk to these investments is expected to decline as the respective operations mature and begin to deliver returns.
On a consolidated basis, return on assets has risen with the upturn in construction activity and construction margins, the realization of cost rationalizations, as well as the benefit of occasional divestment gains from its portfolio of infrastructure investments in emerging markets. Earnings are expected to continue their uptrend in 2001, aided by exceptional gains of RM91.8 million to date from IJM’s disposal of shares in Guangdong Provincial Expressway Development Co Ltd. While a lower economic growth rate on the domestic front could reduce the group’s growth and profitability in the medium term, MARC believes that IJM would maintain debt service coverages consistent with its current rating. MARC anticipates further improvement in the group’s financial measures in 2001 with ongoing debt reductions from operating cash flow and sell-down of overseas investments. Capital investments are expected to be moderate given management’s commitment to maintaining a strong capital structure.
Established in 1983, IJM is one of the largest and most diversified construction groups in the country. IJM’s activities range from construction, properties, manufacturing and quarrying to plantations and infrastructure projects. On the construction front, IJM’s ability to undertake the whole spectrum of construction works, favourable track record, financial resources and lean cost structure places the group in a good position to weather downturns in the construction cycle. IJM’s growing participation in construction projects outside Malaysia helps cushion its earnings from the adverse effects of the difficult domestic economic conditions. The group’s large construction order book of over RM1 billion should adequately sustain the construction division for the next two years. IJM’s palm oil business continues to generate positive operating cash flow despite current pricing weakness. Plantation segment earnings, meanwhile, remain vulnerable to a protracted period of depressed crude palm oil (CPO) prices against the backdrop of continued excess supply in the global CPO market.
On the international front, IJM’s focus is on contracting and construction management as well as building a portfolio of geographically dispersed infrastructure investments in emerging markets. Recent activities in international markets include investments in a power plant in India, a water treatment concessionaire in Vietnam, and tolled highways in Argentina and China. The overseas ventures, while providing the group with geographical diversity and the opportunity to earn higher returns, are also exposed to substantial political and local currency risks. Risk mitigation techniques employed by the group include allocating the construction and operational risks to local reputable contractors and operators; managing the group’s financial exposure via joint venture investments with other equity investors and securing payment obligations either from the foreign government and/or local financial institutions. The downside risk to these investments is expected to decline as the respective operations mature and begin to deliver returns.
On a consolidated basis, return on assets has risen with the upturn in construction activity and construction margins, the realization of cost rationalizations, as well as the benefit of occasional divestment gains from its portfolio of infrastructure investments in emerging markets. Earnings are expected to continue their uptrend in 2001, aided by exceptional gains of RM91.8 million to date from IJM’s disposal of shares in Guangdong Provincial Expressway Development Co Ltd. While a lower economic growth rate on the domestic front could reduce the group’s growth and profitability in the medium term, MARC believes that IJM would maintain debt service coverages consistent with its current rating. MARC anticipates further improvement in the group’s financial measures in 2001 with ongoing debt reductions from operating cash flow and sell-down of overseas investments. Capital investments are expected to be moderate given management’s commitment to maintaining a strong capital structure.