Thursday, Feb 24, 2000
MARC has assigned a rating of A (Single A) to IJM Corporation Berhad (IJM)’s RM150 million nominal value of 5% redeemable unsecured bonds (2000/2005) with up to 83,015,330 detachable warrants. The rating reflects the group’s strong operating characteristics and favourable competitive position in its traditional construction business, its positive track record in diversifying into non-construction related businesses, a satisfactory overall financial performance at the company and group level, as well as management’s commitment to maintain a moderate financial profile. Credit quality, however, is moderated by the inherent cyclicality of the construction industry, increasing investment in long lead-time projects in emerging markets and the significant capital spending needs of its plantation business in the near and intermediate term.
Established in 1983, IJM is one of the largest and most diversified construction groups in the country. IJM’s activities are concentrated in construction, properties, manufacturing and quarrying, plantations, education and international ventures. On the construction front, IJM’s ability to undertake the whole spectrum of construction works, favourable track record, financial resources and lean cost structure have positioned the group well for competition in a challenging operating environment. The group’s large construction order book of over RM1 billion will adequately sustain the construction division for the next two years. IJM’s plantation division, now an integral part of the group’s business profile and important contributor to the group’s earnings, features prominently in the group’s expansion strategy in coming years. The group is in the midst of acquiring new plantation land in a pursuit to double its planted hectarage over a five-year time frame. Although exposed to commodity pricing risk, the plantation business offers good growth prospects and provides diversification in the group’s earnings base. The business is also expected to have positive operating cash flow at the lowest points in the pricing cycle.
On the international front, IJM’s focus is on contracting and construction management as well as building a portfolio of 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. While overseas ventures provide the group with geographical diversity and the opportunity to earn higher returns, they also expose the group to uncertainties at the same time, including political and local currency risks. Nonetheless, the group’s financial exposure is reduced via joint venture investments with other equity investors. Also, capital contributions for overseas ventures have remained small relative to capital expenditures. Even with well-conceived risk mitigation techniques, IJM faces significant commercial risk in emerging markets. Nonetheless, the downside risk to these investments is expected to decline as the respective operations mature and internal cash generation strengthens.
Credit quality measures at the company level were below historical trends in 1998, reflective of a more difficult operating environment. Management’s efforts to contain costs, combined with moderate financial leverage have helped the company and group to weather the recent economic recession. On a consolidated basis, return on assets has been trending downwards due to the lag effects of earnings from new ventures, while debt to finance such investments is incurred at project inception and during construction. However, continued dividends from these associates, repayment of shareholders’ advances and sell-down of its overseas investments are expected to provide IJM with sufficient resources to maintain a satisfactory financial profile. The company projects cash flow coverage to remain above 4 times through 2004 while consolidated debt leverage is not expected to exceed 0.5x of its equity base.
Established in 1983, IJM is one of the largest and most diversified construction groups in the country. IJM’s activities are concentrated in construction, properties, manufacturing and quarrying, plantations, education and international ventures. On the construction front, IJM’s ability to undertake the whole spectrum of construction works, favourable track record, financial resources and lean cost structure have positioned the group well for competition in a challenging operating environment. The group’s large construction order book of over RM1 billion will adequately sustain the construction division for the next two years. IJM’s plantation division, now an integral part of the group’s business profile and important contributor to the group’s earnings, features prominently in the group’s expansion strategy in coming years. The group is in the midst of acquiring new plantation land in a pursuit to double its planted hectarage over a five-year time frame. Although exposed to commodity pricing risk, the plantation business offers good growth prospects and provides diversification in the group’s earnings base. The business is also expected to have positive operating cash flow at the lowest points in the pricing cycle.
On the international front, IJM’s focus is on contracting and construction management as well as building a portfolio of 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. While overseas ventures provide the group with geographical diversity and the opportunity to earn higher returns, they also expose the group to uncertainties at the same time, including political and local currency risks. Nonetheless, the group’s financial exposure is reduced via joint venture investments with other equity investors. Also, capital contributions for overseas ventures have remained small relative to capital expenditures. Even with well-conceived risk mitigation techniques, IJM faces significant commercial risk in emerging markets. Nonetheless, the downside risk to these investments is expected to decline as the respective operations mature and internal cash generation strengthens.
Credit quality measures at the company level were below historical trends in 1998, reflective of a more difficult operating environment. Management’s efforts to contain costs, combined with moderate financial leverage have helped the company and group to weather the recent economic recession. On a consolidated basis, return on assets has been trending downwards due to the lag effects of earnings from new ventures, while debt to finance such investments is incurred at project inception and during construction. However, continued dividends from these associates, repayment of shareholders’ advances and sell-down of its overseas investments are expected to provide IJM with sufficient resources to maintain a satisfactory financial profile. The company projects cash flow coverage to remain above 4 times through 2004 while consolidated debt leverage is not expected to exceed 0.5x of its equity base.