KUALA LUMPUR (Apr 22): Malaysian Rating Corp Bhd (MARC) downgraded its outlook on IJM Corp Bhd’s RM1 billion commercial paper/medium-term notes programme to negative from stable.

In a statement today, MARC said prospects of IJM Corp (fundamental: 1.1; valuation: 1.4)'s core businesses in the oil palm and property development sectors are challenging. According to MARC, this is due to the sharp decline in crude palm oil prices since April 2014, and slowdown in the property segment.

“The sharp decline in palm oil prices since April 2014 from RM2,800/MT to about RM2,200/MT currently and the weak near-term outlook for the sector would further weigh on the group’s plantation division’s earnings.

“The rating agency also notes that the slowdown in the property sector has seen demand moderating for several of IJM’s property development projects,” said MARC, which had however maintained its MARC-1/AA- on the IJM Corp's RM1 billion bond programme.

MARC is also mindful of IJM Corp's debt levels. MARC noted that IJM Corp's borrowings had steadily risen to RM6.3 billion as at end-December 2014 (9MFY15) compared to RM5.6 billion as at end-FY14.

MARC said the potential funding for IJM Corp's key infrastructure projects and capital expenditure could further pressure its credit profile.

“The negative outlook may be revised back to stable if IJM is able to exhibit financial resilience, particularly in restoring its cash flow protection measures to better reflect the credit strength of an AA- rated issuer.

“The long-term rating, however, could be lowered should key financial metrics deteriorate due to weakening performance of key business segments and/or additional increase in borrowings,” said MARC.

At 12.30pm, IJM Corp shares rose two sen or 0.3% to settle at RM7.40 for a market capitalisation of RM13.17 billion.

Some 1.6 million shares changed hands.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)