FW: RHB FIC Credit Market Update - 24/7/14

24 July 2014

Credit Market Update

Asian Credits Traded Tighter; Better China Manufacturing PMI

REGIONAL                      

¨      Asian USD credits ended tighter; China manufacturing PMI beats expectation. We saw better buying along the short- to mid-end while selective papers on the long-end headed the opposite with wider yields. JACI spreads ended marginally tighter, with IG and HY spreads closing at 171.5bps (-1.7bps) and 460.5bps (-1.5bps) respectively. In the China/HK IG USD space, yields generally traded a couple of bps tighter on papers such as HUWHY 19 and GRNLHK 16. A similar trend was seen on Singapore and Thai USD papers, such as UOBSP 17 senior, OCBCSP 15 senior and BBLTB 18 senior. Looking forward, Asian credits may trade softer following subpar performance overnight on US Treasuries (unchanged to +1bp) and better-than-expected China manufacturing PMI this morning (actual: 52.0; consensus: 51.0). Further, we expect recovery in US economy to continue to be reflected on important data tonight such as jobless claims and manufacturing figures.

¨      Mixed flows in short-medium term papers; Otto Marine prices SGD70m 2y at 7.00%. Yesterday’s SGD swap curve ended 1-3bps flatter following overnight USTs advancing. On the SGD secondary front, interest was concentrated in short- to mid-dated papers like WINGTA 18c15, GGRSP 17 and UOBSP 22c17 On the primary front, Otto Marine Ltd (NR) priced a SGD70m 2y issue at 7.00%

MALAYSIA

¨      Secondary market active on good credit bonds. Yesterday MYR PDS trading volumes remained modest at MYR458m activities amid thin trading on MGS bonds market. AAA-rated papers dominated the trading activities (54% of total volumes) where we saw another lively day on Aquasar papers closing in the range of 4.19%-4.58% for maturity 7/18-7/21 with MYR100m reportedly done. Other top transacted bonds were Hyundai Capital 5/15 on MYR40m trades ended flat at 3.96%; and MYR30m of Prasarana 9/22 realigned upwards to 4.30% (+49bps since 23-Jul-13).

TRADE IDEA: MYR

Bond	UEM 12/18 (yield: 4.57%; price: 100.12; MGS+99bps) (MARC: AA-)
Comparable(s)	IJM 4/19 (yield: 4.55%; price: 100.19; MGS+90bps) (RAM: AA3)
Relative Value	We reiterate our preference for UEM 12/18 (last mentioned in Credit Market Update 19-Mar) which has gained by c.6bps since last mentioned. We opine that this paper could offer slight pick-up of c.2bps relative to IJM 4/19 with slightly shorter duration by 4 months.
Fundamentals	We continue to see value in UEM 12/18 based on: 1)     Mixed composition of property buyers. Foreigners constitute of c.49% of UEM-Sunrise’s property buyers in Iskandar, which continue to enjoy strong purchasing power. The recent increased minimum floor purchase price of MYR1mil (from MYR500,000) is expected to have minimal impact on UEM-Sunrise’s property in Iskandar (with property prices generally priced above MYR1mil). Nevertheless, further property tightening initiatives that are targeted towards foreign buyers would could potentially impact UEM-Sunrise’s topline.   2)     More heavily leveraged compared to its peers, with Debt/ EBITDA at 5.1x (peers: 3x) and Interest Coverage at 6.9x (peers: 13.8x), though ultimately likelihood of default is low due to its ownership structure as well as strategic importance (see point no.3)  3)     Strategic importance as UEM Group Berhad (which owns a majority stake of 64.9% in UEM-Sunrise) is fully-owned by Khazanah Nasional Berhad and UEM-Sunrise is deemed to be of key national strategic importance as the master-developer of Iskandar, Johor Peers: SP Setia Bhd, Glomac Bhd, IJM Land Bhd, Mah Sing Group Bhd, IOI Properties Group Bhd