FW: RHB FIC Credit Market Update - 28/4/14

28 April 2014

Credit Market Update

MYR Trades Belly-Focused; APAC Yields Tighten; UST Yields Continued Downwards Trend on Ukraine

MALAYSIA                      

¨      Credit activity subsided, with investors eyeing belly trades; Sime Darby, Gamuda and HLBank top-traded. Last Friday’s trading volume fell 57% to MYR343m from MYR804m, slowing down after an overall busy week of secondary activity. We also observed investors focusing on AA1-rated financial names, mostly along the belly of the curve, as well as AAA names like Sime Darby and Cagamas; yields across top-traded papers generally ended flat or widened within the range of 2-7bps. In the Banks/FIs space, we saw a lot of attention in old-style T2 subdebt, with selling bias seen in HLBank 8/20c15, which widened 7bps to 4.15% on MYR45m traded and Maybank 5/24c19, which realigned +2bps to 4.47% on MYR15m traded. Meanwhile, OCBC 11/20c15 tightened 1bp to 4.19% on MYR30m, while CIMB Bank 12/20c15 and Public 8/22c17 each saw MYR15m traded flat at 4.12% and 4.53% respectively. Elsewhere, Sime Darby 11/16 emerged top-traded at MYR65m exchanged, settling at an unchanged level of 3.77% since 17-Apr 14. Gamuda 3/18 also saw realignment following RAM’s announcement on its pending water assets divestment, ending 5bps wider at 4.50% since its previous trade on 12-Feb 14.

¨      Cagamas posted +27.4% profit growth in 2013. Cagamas Holdings Bhd has reported pre-tax profit of MYR703.2m in 2013 (2012: MYR551.9m) on the back of loan growth of 10.8%, which brings the total loan outstanding to MYR31.7bn (2012: MYR28.6bn). Shareholders’ fund rose 11.6% to MYR4.8bn from MYR4.3bn in 2012. Our view: Without doubt, the credit of Cagamas should remain top-notch as a quasi. We saw trade on Cagamas 4.05% 2/15 and Cagamas 4.15% 10/20 on Friday, ended the day at 3.08% (MGS+37bps) and 4.35% (+41bps) respectively. We see the spread as fair at this juncture.  

¨      Prasarana target revenue collection on LRT extension by 1H16. It was reported that both Ampang Line and Kelana Jaya Line extensions are proceeding smoothly with a targeted revenue service by both lines to start by end of 1Q16 and 2Q16 respectively. According to the head of project development division, Ahmad Kamal Md Yatim, the work progress for the Kelana Jaya line is 66.8% while the Ampang line is 44% with composite progress at 52.9%. Our view: In line with our upgrade on Malaysia’s GRE/SOE in 2Q14 (to Neutral), we are encouraged by the pace of the progress of the projects with multiplier-effect such as the MRT (via DanaInfra) and the LRT extension. The new Prasarana 4.03% 3/19 and Prasarana 4.67% 3/24 was seen traded at 4.03% (MGS+48bps) and 4.57% (+49bps) respectively. The latter has tightened by 10bps since issuance (with 6bps spread tightening) while the 5y is nicely tracking the MGS movement as credit spread remained flat thus far.        

REGIONAL

¨      APAC Credit Yields Tighten; UST yields continue trending downwards on Ukraine. JACI Composite tightened 2.3bps to 254.5 with interest towards safer IG papers as JACI IG tightened 2.5bps while HY tightened by a lesser 1.5bps. China and HK saw broad yield narrowing as HK was led by a diversified group of papers like YUEXIU 1/23 (-c.8bps to 6.175%), CHOHIN 11/20 (-c.4bps to 4.996%), CINDBK 6/20 (-3bps to 5.227%) and HKCGAS 8/18 (-c.3bps to 2.683%). Over in Singapore, trades were varied with names such as Temase 1/23, SPSP 9/22 and STSP 9/21 gaining traction. Despite current political disruptions that have impacted consumer and investor sentiment, Thai banks continue to perform relatively well led by issues like KBANK 8/16 and SCBTB 9/17. We opine that further Thai yield tightening is foreseeable towards year end as the political situation improves. USTs narrowed by 1.8bps to 2.66% amid escalating conflict between Russia and Ukraine. Data released by the Fed show that US commercial lenders have increased their holdings of USTs every month of this year (currently standing at USD1.85trn), continuing to put additional downward pressure on UST yields. Meanwhile, the University of Michigan Consumer Sentiment index edged higher to 84.1 (est: 83.0).

¨      Ratchaburi Electricity Generating Holding Co is issuing a USD REG S (expected ratings: Baa2/BBB/NR) at initial guidance of T+190bps while Korea Land & Housing Corp is issuing a 3.25y USD REG S (expected rating: A1/A+/NR) at T+125bps.  Yan Lord is printing a 3y SGD (expected ratings: Ba3/BB-/NR) at initial price guidance of 6.5%. Meanwhile, Axis Bank (Baa3/Sta; BBB-/Neg; BBB-/Sta) has announced that it will issue up to USD1bn by Mar 2015. Following last week’s active APAC primary market led by USD2.5bn TENCNT dual tranche issuance and USD4bn CNOOC, we expect continued strong demand especially from US accounts (with more than half of recent primaries being taken up by US investors) before the 144A window closes in mid-May.

TRADE IDEA

¨      MYR: Hong Leong Bank 6/24c19 still cheap against other AA2/AA-rated old-style T2s. Based on our 1-month AA2/AA RV curve for Banks/FIs papers, we see value in HLBank 6/24c19 as one of the few old-style T2s still trading below par (price: 98.95; ytc: 4.73%; spread: MGS5Y+114.7bps) and with a pickup of 18.6bps to the curve. The paper has performed well since the start of April when it started off at price: 98.33 and ytc: 4.87%. As an old-style T2, the likelihood of being called is higher due to the amortization requirement on old-style capital and the embedded regulatory call option. From a credit standpoint, HLBank has shown healthy capitalization, profitability and asset quality in addition to possessing strong liquidity.

 

This message is intended only for the use of the person(s) to whom it is addressed and may contain information that is privileged or otherwise protected from disclosure. If you are not the intended recipient you are hereby notified that any use, review, disclosure or copying of this message and the information it contains is prohibited. If you receive the message in error, please notify the sender by reply e-mail and discard all its contents.   Thank You.