Economic Outlook - 30/04/2014

Uneven Economic Growth, But With Improving Prospects

¨      The five major ASEAN economies are not expected to have a strong showing in economic growth in 2014, partly because export recovery remains modest and partly bogged down by internal problems. As a result, we envisage the ASEAN-5 to grow at a more moderate pace of 4.7% in 2014, compared with +4.9% recorded in 2013. However, investors should look beyond the moderation in growth, as it will likely be temporary and it is envisaged to bounce back and chart a stronger growth of 5.2% in 2015.

¨      Thailand will likely suffer the most due to its prolong political impasse, which prompted us to downgrade the country’s economic outlook. At another extreme, Philippines’ economic growth is projected to remain relatively strong in 2014, as the Aquino administration has instituted wide-ranging economic and social reforms, leading to a new investment cycle that is still in its early stage of development.

¨      Economic growth in Indonesia and Singapore are projected to hold up, albeit expanding at a more moderate pace in 2014. The former will likely be dragged by higher borrowing costs and the general election overhang and the latter will likely be capped by tight labour condition and a gradual appreciation of the exchange rate.

¨      Malaysia, on the other hand, stands out among the ASEAN-5, as it is the only economy that will likely experience a faster growth in 2014. Although there are challenges due to rising costs, domestic demand led by private investment will continue to be a key driver of growth, albeit expanding at a more moderate pace. This will likely be aided by an improvement in external demand for the country’s exports.

¨      Inflation is envisaged to trend up in Philippines, Malaysia and Singapore but will likely be manageable. Inflation is benign in Thailand and is projected to moderate in Indonesia. Nevertheless, countries in the region will likely be on a tightening bias, particularly in 2H 2014, with the exception of Thailand. Meanwhile, the persistently strong money supply growth in the Philippines that is not consistent with economic growth is a cause for concern, as it could fuel inflation expectations and asset prices.

¨      ASEAN-5 have weathered the US QE tapering relatively well by allowing their currencies to weaken. Given that the US Federal Reserve is on track to exit its quantitative easing by the end of this year, the next question to ask is when will it start to raise interest rates? Our G3 economist believes the Fed’s first rate hike will likely commence around the summer of 2015. Judging from how investors reacted to the QE tapering, we believe they will likely react strongly at the initial stage of interest rate hikes given the uncertainty and fear. However, we expect ASEAN-5 to adjust well to a major shift in monetary policy stance by the US even though currencies in the region will likely be volatile and suffer some temporary weakness. The weakness in ASEAN-5’s currencies, however, will likely be manageable, in our view.

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Economic Outlook - Uneven Economic Growth, But With Improving Prospects

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Ramayana Lestari (RALS IJ, NEUTRAL, TP IDR1,350) Results Review: No Excitement

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Ramayana Lestari (RALS IJ, NEUTRAL, TP IDR1,350) Results Review: No Excitement

Ramayana booked IDR1.18trn (-8.9% q-o-q) in net revenue and IDR 40.6bn (-11.7% q-o-q) in net profit for 1Q14. We consider this in line, reflecting 17.4%/8.9% of our FY14 net revenue/net profit estimates. We remain cautious going forward, as its growth plan is limited and an overlap in the mid-year peak season could be a challenge. We maintain our forecast and NEUTRAL call with an unchanged IDR1,350 TP.

       Within expectations. Ramayana Lestari (Ramayana) performed as expected during 1Q14, with a net revenue of IDR1.18trn and net profit of IDR40.6bn. EBIT margin improved during the quarter to 2.7% from -0.2% in the previous quarter as a result of better operational expenses management. As a result, core net margin also improved to 4.3% from 3.5% in the earlier quarter. However, historically speaking, 1Q performance only takes into account 17-18% of a financial year’s performance. The majority of Ramayana’s sales are contributed by 2Q and 3Q, ie during the Lebaran and back-to-school periods.

       Remaining cautious. Ramayana is planning to add 5-6 stores in  Pamulang, Malang, Solo, Depok and Tajur this year.  The expansion will add to the 118 existing stores that the company has been operating as at end-FY13. We believe Ramayana may face challenges from an overlap between Lebaran (and its subsequent sales) and the back to school period in the mid-year peak season. This is because consumers are likely to spend less on the latter to maximise their savings for the latter instead. Notably, back-to-school sales are equivalent to 1.5x of the company’s monthly average. By comparison, Lebaran sales are equivalent to 3.5x of Ramayana’s monthly average.

Maintain NEUTRAL and IDR1,350 TP.  While this year’s election might present a short-term catalyst, we believe that Ramayana’s growth outlook may remain challenging going forward. We maintain our forecast and NEUTRAL call on the stock with an unchanged IDR1,350 TP, which reflects 21x FY14F P/E.  

Best regards,

RHB OSK Indonesia Research Institute

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Bank Tabungan Negara (BBTN IJ; Sell; TP IDR1,100) Results Review: That Familiar Feeling

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Bank Tabungan Negara (BBTN IJ; Sell; TP IDR1,100) Results Review: That Familiar Feeling

Bank Tabungan Negara’s 1Q14 was underwhelming, as NIM contracted while credit costs jumped, precipitated by further deterioration in credit quality. NPL restructuring and recovery efforts are yielding minimal results so far and loans growth continues to moderate. The Housing Ministry’s decision to increase subsidised homes selling prices is positive for supply. Maintain Sell, with acquisition the major risk to our negative call.

¨       A poor start. Bank Tabungan Negara’s 1Q14 net earnings of IDR341bn (-32% q-o-q; 2% y-o-y) made up a mere 20%/21% of consensus and our full-year earnings estimates. Precipitated by soaring non-performing loans (NPL), provisions were the major earnings drag as it rose sharply to IDR244bn (+127% q-o-q; +363% y-o-y). Net interest income contracted 5% q-o-q (13% y-o-y) as cost of funds (CoF) jumped 79bps q-o-q to 6.1% while asset yields only booked 27bps sequential growth. Consequentially, net interest margin (NIM) dived 51bps q-o-q to 4.8%. Its quarterly annualised ROAE of 11.9% was the lowest since its IPO.

¨       Corrosion of asset quality continues. Gross NPL ratio rose to 4.7% after a seasonally low 4Q, with both housing and non-housing loans NPL ratios remaining under pressure at 4.4% and 7.3% respectively. By comparison, 4Q13 housing and non-housing loans NPL ratios stood at 3.8% and 5.6% respectively. Restructuring and recovery efforts have yielded limited results, with IDR138bn out of the IDR1.2trn target of asset sale in 2014, as the manpower required was only fully assembled in April. Bank Tabungan Negara’s expectation of 2.6% gross NPL ratio by year-end could be overly optimistic. NPL coverage ratio remained low at 28%.

¨       Pressure on NIM to persist. Loans growth continued to moderate (2% q-o-q; 20% y-o-y) especially in the non-housing segment (13% of total loans; 11% y-o-y) but deposit growth remained below that of loans (17% y-o-y). Thus, loan-to-deposit ratio (LDR) remained elevated at 101% and downward pressure on NIM is expected to continue.

¨       Housing Ministry reported to be raising the selling price caps of subsidized homes. It will reportedly rise by an average of 34%. At the same time, borrowers’ maximum income thresholds will also be raised. This should be a positive for the supply of subsidised home units.

Best regards,

RHB OSK Indonesia Research Institute

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ASIFMA Asia Credit Report for Q1 2014

ASIFMA is pleased to share with you our Asia Credit Report for Q1 2014, following our annual Asia Credit Report released in January. Some of the key highlights in this report include:

1)      The development of other offshore CNH centers besides Hong Kong

2)      A separate section on developments in the domestic onshore CNY market (including the issuance of the first ever Panda bond by an offshore corporate)

3)      Reasons behind the relative outperformance of credit as an asset class, relative to equities and other asset classes in Q1 2014

Please access the report here. 

Maybank GM Daily - 30 Apr 2014

FX

Global

·         US Consumer confidence slipped to 82.3 in Apr from the previously revised 83.9. Even so, sentiments remained positive with stock indices finishing the session higher. DJI and S&P were up +0.5% each while NASDAQ led at +0.7%.

·         FOMC is the elephant in the room again but few expect surprises given the rather consistent rhetoric of late. The Fed is expected to stay the course. Before that, BOJ makes its policy decision as well. Most also expect no adjustments from Japan’s central bank. This morning, the preliminary estimate of Mar industrial production came in a touch softer than the average estimate at 0.3%m/m, albeit still an improvement from the previous decline of -2.3%.  Onshore markets are back from a day of break with Nikkei 0.8% higher

·         Apart from central bank meetings, there are a few key releases today that could move markets including CPI estimate from the Eurozone bloc as well as ADP employment report from the US.  Inflation is a key determinant of ECB’s next move while the ADP report could give a hint of the payroll numbers due this Fri. Dollar was up in late Asia on Tue but the greenback is still within familiar range, waiting for a cue to breakout.

·         USD/AXJs are likely to trade in range, trapped in a tug-of-war between equity-related gains and modest dollar strength. Meanwhile, underlying caution could keep regional pairings from aggressive moves.

G7 Currencies

·         DXY – Range-bound. The index bounced in late Asian afternoon and was last seen around 79.80.  4-hourly chart shows increasing bullish momentum. Much of price-action has been confined within the Ichimoku cloud and the cloud is thinning out. Expect volatility today, especially led by the EUR. 79.920 marks the interim barrier ahead of 79.988. 80.135 could guard upsides today. FOMC awaited as well.

·         USD/JPY – Sideways. USD/JPY took a peek above the 102.68 yesterday before slipping to around 102.60. Choppy trades on Tue were due to thin volume. BOJ meets to decide pace of stimulus later. Momentum indicators are still unclear though bias seems to be on the upside. We expect moves to remain at the firmer part of the 101.96-103.00 range. Apart from the central bank meeting, we watch Ukraine-Russia saga, China PMI-mfg (official) as well as US NFP for cues to this pair.

·         AUD/USD – Back in Range. Pair bounced from the 0.9218-support to around 0.9280 levels. This was despite the dollar upmove in the pair. MACD on the intra-day chart suggests rangy moves now with MACD forest above the zero-line. Pair needs to get above 0.9319 for further bullish extension or risk another pullback towards 0.9218. A break of the 0.9218-support could trigger aggressive offers towards the next support at 0.9154.

·         EUR/USD – Range-bound. Pair slipped from its high of 1.3879 back towards the 1.38-figure, finding tentative support around 1.3807. Offers were triggered by the fall in Germany EU-harmonized CPI which declined by 0.3%m/m. That brings the pair back into the 1.3785-1.3879 range. Recent price action suggests a strong support at the lower bound though momentum indicators depict a bearish bias. We are thus wary of a break at 1.3785 that could bring the pair towards the next support at 1.3770. That could triggered by the CPI estimate from the Eurozone bloc.

Regional FX

·         The SGD NEER trades 0.41% above the implied mid-point of 1.2608 with the top end estimated at 1.2358 and the floor at 1.2860.   USD/SGD – Downside risks.  The USD/SGD is wobbling again and is currently trading around 1.2560 with risks still to the downside. With the FOMC meeting just round the corner and ahead of tomorrow’s market closure in Singapore, the pair is likely to remain in consolidation between 1.2530/1.2596 today.

·         Singapore’s MAS warned that wage pressures are likely to intensify for the rest of 2014 on the back of still healthy demand for workers amid a tight labor market. MAS does not expect productivity gains to fully offset rising wages with rising unit labor cost (of about 3% in 2014) the consequence. The outlook for the economy and inflation were left unchanged with GDP expecting to come in at 2-4% and headline and core inflation at 1.5-2.5% and 2-3% respectively in 2014.

·         AUD/SGD – Upticks.  Cross is back on the uptick, hovering around 1.1652 on the back of a resurgent AUD. Our four-hourly chart is now showing risks back to the upside with the immediate target at 1.662. A break of that barrier should expose the next hurdle at 1.1685. Support today is seen at 1.1620.   SGD/MYR – Slow grind higher.  Cross took out our support at 2.5974 on its way down yesterday but is drifting higher this morning underpinned by SGD strength and MYR weakness. Pair is sighted around 2.5963 currently with risks still tilted to the downside. Continued weakness in the MYR today could see the cross and 2.6019 guarding topside today.

·         USD/MYR – Risks Tilting Lower. Pair retreated further to levels around the 3.26-figure this morning.  MACD shows increasing bearish momentum this morning though price is on the uptick, buoyed by the overnight dollar gains. 3.27 is an interim barrier ahead of the next big figure at 3.28. Dips to meet support at 3.2495. MYR strength lured buying interests in the domestic bonds market and dragged on the USD/MYR pairing though the FX space was rather subdued. The 1-month NDF drifted lower to around 3.2680 this morning. MACD shows slight downside risks and the pair could settle within the 3.2593-3.2796 range.

·         USD/CNY was fixed higher at 6.1580 (+0.0024), vs. previous 6.1556 (+2.0% upper band limit: 6.2837; -2.0% lower band limit: 6.0373). CNY/MYR was fixed at 0.5250 (-0.0021).

·         USD/CNY – Bullish Bias. USD/CNY bounced higher, guided by the fixing and was last seen around 6.2630. Even with the upmove, MACD pared bullish momentum on the intra-day chart. Fears of outflow and economic slowdown continued to keep the pairing supported. The 6.2466-mark is the support to reckon for the pair after the interim at 6.2466 while next bullish target is at 6.2787. PBOC revealed that 14 out of 17 banks may not reach the capital adequacy ratio requirement if GDP growth decelerates to 4%, as stated in its report on financial stability 2014.  1-Year CNY NDFs – Tilting up. Pair has pared most of its bearish momentum with the bounce this morning, guided by the higher fixing. Priced around 6.2560 at last sight, the pair could break the barrier here to head towards the 6.2647. Support at 6.2475 remains.

·         USD/CNH –Bullish. USD/CNH was back at the upper bound of the 6.2450-6.2636 range. Last seen around 6.2637, the onshore spot reference rate was fixed higher. Bullish momentum is gaining on the pair and a break here exposes the next at 6.2750. 6.2517 has become a viable support. CNH trades at a widening discount to the CNY.

·         USD/IDR – Consolidative trades. The USD/IDR is again on the downtick this morning underpinned by dollar weakness overnight. Last sighted around 11525, intraday chart is indicating increasing bearish momentum while RSI is nearing oversold conditions, printing 24 currently. This was despite foreign funds selling a net USD42.98mn in equities yesterday. For further moves lower, we need to see a sustainable break of the key 11500-level to expose the next support at 11475. Otherwise, the pair should continue in consolidative trade within 11500/11584 today. The 1-month NDF is inching lower this morning, hovering around 11562 currently from yesterday’s close of 11565 with risks still to the downside and in oversold conditions at last sight. The JISDOR was again fixed higher yesterday at 11589 from Mon’s 11568.

·         USD/PHP – Upticks. The USD/PHP is back on the uptick, hovering above the 44.500-level at 44.510 currently. Risks though remain to the downside, suggesting that upsides could be capped today. Moreover, continued foreign interest (a net USD7.6mn in equities was bought yesterday) should mitigate somewhat any upside risks. Support is seen at 44.421, while 44.555 should curb topside today. 1-month NDF is inching higher this morning at around 44.530 with intraday chart showing waning bearish momentum in the works. 

·         USD/THB – Still rangy.  The USD/THB trades have so far been confined within 32.178-32.304 range. Pair is currently hovering higher around 32.270, with our intraday chart showing little momentum in either direction. Without any fresh impetus today (aside from the Election Commission’s meeting with the cabinet to decide on the election date today), pair is likely to trade within familiar ranges today. Yesterday, foreign interests were mixed with a net THB413.32m in equities sold but a net THB2.74bn of government bonds were purchased, which net-net kept weighed on the pair.   Thailand’s central bank governor expects 2Q GDP to come in better than 1Q as exports should recovery on the back of better global growth. He also expects full-year growth for next year to be better than this year’s as the political situation improves.

Rates

Malaysia

·         Yields on local government bonds ended lower in an actively traded market. Market opened firmer with better buyers seen across the yield curve. Strong buying interest on WI MGS 10/19 might have provided some support. WI was traded between 3.685% - 3.66% compared to 3.70% - 3.68% at previous close. At market close, yields on 3, 7 and 10-year benchmark MGS ended 1-2bps lower at 3.38%, 3.91% and 4.07% respectively. At today’s auction, MGS 10/19 garnered a bid-to-cover ratio of 2.715. The highest and lowest successful bid was 3.669% and 3.62% respectively, while the average yield was 3.654%. Post tender it was traded between a low of 3.609% and high of 3.628%.

·         Along with stronger MGS and spot MYR, we saw good receiving interest on the belly of the curve. There were some trades reported on the 5-year point albeit the volume is rather small. The curve ended circa 1-2bps lower for the day.

·         The MGS auction took some of the focus from credit today. The PDS market was pretty rangebound around last traded levels. Some buying interest was seen on papers that have better spreads but illiquid like Bumitama but still pretty much focused on belly of the curve. We will probably still see buyers trying to get better levels from the familiar names.

Indonesia

·         Indonesia bond market slightly corrected on yesterday’s trading session after a sudden jump in bond prices on Monday. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield closed at 7.631% (+5.2bps), 7.918% (+4.6bps), 8.386% (+6.4bps) and 8.538% (+6.5bps) while 2-yr yield shifted up to 7.390% (+1.6bps). Trading volume at secondary market was noted heavy amounted Rp12,926 bn (vs average per day trading volume of Rp7,602 bn). FR0071 (15-yr benchmark series) and FR0068 (20-yr benchmark series) was the most tradable bond during the day. FR0070 total trading volume amounting Rp4,153 bn with 100x transaction frequency and closed at 105.142 yielding 8.386% while FR0068 total trading volume was recorded amounted Rp2,016 bn with 107x transaction frequency and closed at 98.438 yielding 8.538%.

·         Indonesia government sets Saving Bond Retail (SBR) floor coupon at 8.75% which will be paid on a quarterly basis (every 20th of each month). SBR is a non tradable bond with 2 year tenor which means that the SBR investors should hold the bond till its maturity. SBR is offered to retail investors only and will pay a variable coupon pegged to LPS rate with an additional spread of 125bps. However, the variable coupon will not fall below the initial coupon rate set of 8.75%. The issuance of SBR would be attractive for investor with midterm investment horizon. 15% final tax on bond coupon will be borne to SBR which is similar with the taxes charge to Indonesia retail bond and Sukuk retail.

·         Indonesian government held a series of auctions yesterday and received a total of Rp16.90 tn bids versus its target issuance of Rp8 tn or oversubscribed by2.11x. However, only Rp8 tn bids were accepted for its 3-mo SPN was sold at a weighted average yield of 5.59909%, 12-mo SPN at 6.52000%, 5-yr FR0069 at 7.60903%, 15-yr FR0071 at 8.35895%, 20-yr FR0068 at 8.52891% while 30-yr FR0067 was sold at 8.74829%. Incoming bid during yesterday’s auction was slightly higher compared to April 15th, 2014 conventional auction amounting Rp15.15 tn and were fairly distributed among the offered government instrument. The. Bid-to-cover ratio on today’s auction came in at 1.14X - 5.99X. No bids were rejected during the conventional auction yesterday.

·         On the corporate bond segment, trading volume remains thin amounting Rp527 bn (vs average per day trading volume of Rp750 bn). MEDC01CN2 (Shelf registration I Medco Energi International Phase II Year 2013; Maturity date: 15 Mar 2018; Rating: idAA-) was the top actively traded corporate bond yesterday with total trading volume amounting Rp120 bn and was last traded at 97.5 yielding 9.630%.

Rgds,

Maybank FX Research

Global Markets

Maybank