31 July 2014
Credit Market Update
Credits Traded Softer; Dovish Fed Despite Positive 2Q
GDP
REGIONAL
¨
Asian USD credits traded softer; dovish Fed despite
improving GDP and job data. We saw better selling yesterday in Asian USD credits
yesterday as most papers saw rising yields in general. New Huarong 19 eased
wider, reversing its outperformance last week. Other traded papers include
POLYRE 19, UOBSP 17 and OCBCSP 15 seniors which ended a couple of bps wider.
Meanwhile, JACI Composite spread ended 2.5bps tighter (234.1bps), with the IG
and HY space tightening 2.7bps (167.8bps) and 1.9bps (456.0bps) respectively,
partly due to a spike in UST yields. The surprise upside in US 2Q14 GDP release yesterday was
overshadowed by dovish Fed which assured that US rates would remain near zero
for a considerable time, while acknowledging the improvements in the labour
market. US Treasury yields added +8bps to +10bps along the mid- to long-end.
Looking ahead, we expect credits to struggle for direction today as investors
digest heavy headline news (including US and European Union sanctions against
Russia) while eyeing upcoming data releases. Important data releases include
initial jobless claims (tonight), nonfarm payrolls, unemployment and
manufacturing figures (Friday), which are likely to be broadly mixed with a
tilt towards continued economic recovery.
¨
SGD credits to see cautious moves; CapitaMall priced 10y
at 3.48%. SGD
swap curve inched higher at the short-end (+2bps) while the mid- to long-end
moved sideways as investors awaited cues from US Fed. We expect SGD bonds to
move cautiously today, tilting towards higher yields following a volatile
overnight session post-dovish FOMC. On the primary front, CapitaMall Trust has
priced SGD300m 10y at 3.48%
MALAYSIA
¨
Financial names led activities in MYR space. Secondary markets
saw good flows of MYR561m yesterday, fueled by financial names (42% of total
volumes). Investors were also seen to focus on short-duration papers. HLB
oldstyle T2 5/21c16 edged 3bps up to 4.23% (Since 22-Jul) on MYR80m
transactions while ADCB 11/17 saw MYR45m done at 4.51% (+1bp since 23-Jul).
Other notable papers were MYR60m trades of Putrajaya 7/16 realigned 24bps
higher to 3.83% (since 12-Oct-2012).
TRADE IDEA: MYR
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Bond
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Ezion
Holdings Ltd, EZISP 21c18 (ytm: 4.73%; SOR+326bps) (NR)
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Comparable(s)
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EZISP
5/19
(ytm: c.4.40%; SOR+c.265bps) (NR)
EZISP
3/20
(ytm: c.4.78%; SOR+c.280bps) (NR)
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Relative Value
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We
reiterate our preference for EZISP 21c18 (last made in our Credit Market
Update dated 28-May) which seems attractive within Ezion complex. We prefer
EZISP 21c18 for duration play with high likelihood of call, based on its
generous 200bps step-up at the first call date. Hence we view that this paper
should be treated as a 4 year piece.
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Fundamentals
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We
continue to like EZISP due to:
1.
Strong orderbook. Ezion chalked up a strong order book of
USD290m in 1Q2014 comprising of four global charter contracts.
2.
Healthy fundamentals with profitability. Compared to its
peers in the Singapore offshore support vessel (OSV) space, Ezion exhibits
healthy fundamentals and financial profile with LTM EBITDA margin at 38% (OSV
peers: 9.3%), LTM Debt/EBITDA at 7.0x (OSV peers: 8.7x) and EBITDA/ Interest
Expense at 10.4x (OSV peers: 3.2x).
3.
Demand for oil and gas support services to stay robust. We expect
oil prices to stay strong this year at c.USD100-110/bbl, hence we expect that
growth in oil exploration and production expenditure should continue
unabated. We opine that growth will be in question if oil prices hit closer
to USD80/bbl. On the surface the OSV sector seems oversupplied (OSV/rig
ratio: 4.5x), in comparison to the global equilibrium ratio of 3.8-4.0x.
However, if we exclude the existing aged vessels (>25 years old), the
ratio drops to 3.3x, which indicates a situation of undersupply instead.
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CREDIT BRIEF
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Company/ Issuer
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Sector
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Country
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Update
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Impact
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AMMB Holdings Bhd
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Banks
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MY
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FYE14 net profit
increased by 12.5% yoy to MYR1.87bn on the back of strong growth in retail
banking (+9% yoy) and insurance business (+89% yoy) as well as improved
cost-to-income to 45.5% (FYE13: 47.8%). Asset quality improved with gross
impaired loans reduced to 1.86% (FYE13: 1.98%). Capitalization remained
strong with tier-1 and total capital stood at 11.2% and 15.5% respectively
(FYE13: 11.1%, 14.8%). Moderate loan and deposit growth of 5.6% yoy (FYE13:
9.1%, 9.8%). Intense competition caused net interest margin dropped to 2.68%
(FYE13: 2.72%). Funding and liquidity remained tight with LDR is high at
97.2% (FYE13: 97.4%).
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Neutral. The Group
has good loss absorption capability supported by its robust capitalization
and good asset quality in addition to perceived support from its strategic
shareholders ANZ Banking Group.
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Sentoria Group Bhd
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Property
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MY
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Printed MYR120m,
3-7yrs, 4.65%-5.30%, AAA (BG by Bank Pembangunan).
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Negative. The
company is planning to gear up for its ambitious expansion plan to develop
integrated resorts in Pahang, Selangor and Sarawak.
This could weaken its debt repayment profiles in the interim period.
Sentoria’s debt-to-equity is estimated to increase to 0.82x post-issuance.
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SP Power Assets
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Power
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SG
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Moody’s upgraded SP
Power from Aa3/Pos to Aa2/Sta driven by its sizable debt reduction (from
divestment proceeds of SP Power’s Australian assets)
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Positive. In
addition to its healthy financial profile, we continue to overweight SP
Power due to its monopoly of the transmission and distribution of
electricity in Singapore, transparent and market-driven pricing system and
strong-likelihood of government support due to Temasek’s full ownership in
SP Power (via Singapore Power Ltd).
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