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

7 July 2014

Credit Market Update

Market to Stay Firm in Data-Lite Week, Mildly-Dovish Fed Minutes Expected 

REGIONAL                      

¨      USD credit yields retraced tighter following widening over the week. We saw better buying last Friday particularly along the short-to mid-end after several sessions of widening last week. In the China IG USD space, newly issued Greenland (GRNLGR) 19 and 24 have seen healthy demand in the secondary market, trading tighter over the week. Meanwhile, primary movers in the Singapore IG USD include CAPITA 18 and OCBCSP 24c19 subdebt which traded a couple of bps tighter last Friday, but both papers opened a tad wider this morning. We expect a marginally firmer tone this week with Fed’s minutes for June 17 and 18 meeting to be released on Thursday (10-Jul). We opine that the meeting minutes may point towards a dovish Fed, supporting the underperformance of USTs seen last week.

¨      USD primary activities resumed. Primary activities resumed after what seemed a drought last week where stronger pending home sales, Uni of Michigan confidence and employment numbers in US led to c.5bps to 11bps higher in UST yields. Notably, a slew of Chinese companies are seen tapping the USD space, such as China National Gold (Baa2/BBB/NR) and China Huarong Asset Management (Baa1/A-/A). Both companies will be holding investors’ meetings in Hong Kong, Singapore and London beginning today.

¨      Slower primaries spurred more SGD secondary activity. SGD swap rates ended wider on Friday, rose by c.1-4bps from the belly-end onwards as USTs were sold off overnight amid stronger jobs data. Meanwhile, we saw secondary credit activity biased to perps from familiar names including UOBSP Pc18 and Pc19 and SPOST Pc19. In addition, we saw interest in YLLG 17. On new issues, Pacific International Lines (Private) Ltd (NR) is returning to the market with a 3y deal at an initial price guidance between 6.25-6.375%.

MALAYSIA

¨      Local PDS ended the week with strong activities. Secondary markets registered with heavy volumes of MYR1.13bn last Friday, focused on bank, GRE and toll roads names. Among the highly traded bonds were Khazanah 2/21 and 9/22 cumulatively on MYR210m to end at 4.40% (+2bps since 15-May) and 4.55% (+93bps since 13-May-2013) respectively; TBEI 3/29 (-3bps to 5.61% since 25-Jun) and 3/32 (close flat at 5.76% since 12-June) on combined MYR185m transactions; and a series of Public old-style B2 T2 traded on MYR165m ranging 11/19-8/22 closing at 3.89%-4.53%. We prefer BNM to maintain OPR at 3.00% in the MPC meeting this Thursday, despite foreign investors’ expectation for a 25bps hike after series of strong data (1Q GDP, CPI and Trade Balance). We view OPR adjustment, if any could be delayed to Sept or November meeting.

TRADE IDEA: SGD

Bond	CHEUNG 11/15 (ytm: c.1.40%; modified duration: 1.25; SOR+c.90bps) (NR)
Comparable(s)	WINGTA 5/15 (ytm: c.1.36%; modified duration: 0.843; SOR+c.100bps) (NR)
Relative Value	We see value in CHEUNG 11/15 based on fundamentals and potential pick-up relative to WINGTA 5/15 which appears attractive in our view.
Fundamentals	We opine that CHEUNG is a good value proposition as:  1)     Stronger fundamentals. Cheung Kong Hldg Ltd is in better shape to weather the property slowdown due to healthy leverage levels with Debt/ Assets at 9.8% (Wing Tai: 29%), Total Debt/ EBITDA at 3.05x (Wing Tai: 3.75x) and EBITDA/ Interest at 14.8x (Wing Tai: 9.8x)  2)     Diversified earning base (excluding associates, property sales are about 85% of total revenue) with sizeable profits from associates such as 45% Hutchison Whampoa and 45.3% CK Life Sciences compared to pure-property player Wing Tai 3)     Slowdown in SG property. Singapore private residential property prices for the recent quarter dipped by 1.1%, the 3rd consecutive quarter, which is expected to continue to impact margins of high-end developers (Wing Tai) with high exposure to the Singapore residential market (SG FY2013 revenue >70% of total revenue).