31 October 2014
Credit Market Update
Investors
Turned to HY for Pick-up; Value in SGD SUNHUN 5/21
REGIONAL
¨
Investors
turned to HY in search for yield. In
the USD credit secondary space, we saw better selling in Asia post relatively
hawkish FOMC while Chinese papers bucked the trend as investors draw comfort
from the Chinese Government’s efforts to prevent non-payment on public bonds.
The only defaulted issuer on onshore notes, Shanghai Chaori Solar Energy
Science & Technology has obtained funds from state-backed asset manager
earlier this month to repay investors without any haircut, lifting investors’
sentiment. Papers traded yesterday include NOBLSP 15, DBSSP 37c15 and KBank 16
senior which widened a couple of bps. Buying in the CN space was seen on papers
like FRANSH complex (17-21), CITICS 19 and CHIOLI 34. JACI HY spread
outperformed, closing 4bps tighter (510bps) while IG spread inched 2bps
narrower (184bps). iTraxx AxJ closed 3bps wider to 113bps. Going forward, we
expect credit investors to continue to eye primary supply and HY space for
pickup opportunities, further supported by expectedly softer US personal
spending tonight. UST yields were a tad lower (-1bp) across the curve overnight
despite stronger-than-expected US 3Q GDP print (actual: 3.5%, consensus: 3.0%).
¨
On the primary
front, New World China Land (NR) printed USD900m 5.375% 5y at 5.45%
yield, well inside initial guidance of 5.75% area.
¨
Active SGD
primaries post-FOMC. The 3y and 5y
SOR saw widening by c.5bps to 1.08% and 1.66% respectively as the 3y/5y spread
marginally tightened by 1bp to 57.7bps. In the credit space, we observed buying
attention on NOLSP, CENCHI and some O&G names (SWIBSP & KRISSP) while
SPSP papers continued to trade a few bps wider. We opine that we will see some
short-duration aversion post the slightly less-dovish FOMC statement released
yesterday. In the primaries, Grand China Air (NR) issued a SGD250m 3y at
a final price of 6%, Mapletree Commercial Trust (Baa2/-/-) printed a
mini SGD50m 5y at final price of 2.65% while Tata International (NR)
priced a SGD150m Pnc5 at final price of 6.65%.
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MALAYSIA
¨
Modest demand
for 3y-GII reopening; corporate bonds relatively active amid quiet primary. Demand for the MYR3.5bn 3y-GII reopening was moderate
with BTC of 2.12x on average yield of 3.667%. Local govies activity surpassed
MYR2.6bn where the 3y-GII topped the trading volumes with the yield edged
upward to 3.67% (+1.5bps, MYR1.6bn), near to the reopening yield. Followed by
10y-GII on MYR520m trades settling at 4.121% (+0.6%). Transactions on the MGS
benchmarks were lackluster yesterday. At the end of the day, 3y, 5y, 7y, and
10y-MGS last done at 3.467% (-3.7bps, MYR4m) 3.634% (+0.4bps, MYR45m), 3.745%
(-2.3bps, MYR3m) and 3.791% (-1.1bps, MYR3m) respectively. Meanwhile, trading
flows were focused in mid-duration bonds on robust total activity of MYR548m in
the PDS market. Among the top traded were SabahDev 8/19 and Sime Darby 11/16
each saw MYR60m exchanged hands to close at 4.743% (+0.4bps) and 3.779%
(-2.9bps) respectively while UEM 6/21 tighten marginally by 0.4bps settling at
4.671% (MYR50m).
TRADE IDEA: SGD
Bond(s)
|
Sun Hung Kai Properties Ltd, SUNHUN 5/21 (yield: 3.04%;
SOR+105bps) (-/A+/-)
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Comparable(s)
|
Capitaland Ltd, CAPLSP 6/20 (yield: 2.85%; SOR+100bps)
(-/-/-)
|
Relative
Value
|
We reiterate a preference for SGD SUNHUN 5/21 which has hovered
at current yields since we first mentioned it in our Credit Market Update
(dated 3-Oct). CAPLSP 6/20, on the other hand, has widened by c.10bps over
the same period. Sun Hung Kai Properties’ outlook was upgraded on 22-Oct to
A+/Sta from A+/Neg by S&P.
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Fundamentals
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We continue to like Sun Hung Kai Properties as:
1)
Exhibits robust and strong fundamentals. The property
developer has a strong financial profile if compared to Capitaland, with LTM
Total Debt/ EBITDA at 3.2x (Capitaland: 27.3x) and EBITDA Interest Coverage
at 10.4x (Capitaland: 1.2x). This should enable it to comfortably ride
through any dampness in the property market arising from HK unrest.
2)
Singapore’s property market expected to be sluggish in
the near term.
The 3Q2014 Singapore residential price index fell for the fourth continuous
quarter (current: 208.1; previous: 209.4), with property prices expected to
remain weak in Singapore. Sun Hung Kai has less exposure to the Singaporean
property sales and rental market (SG: 2%; HK: 69%: China; 29%).
3)
Upgraded despite ongoing court case. S&P upgraded
the companies’ outlook to stable (from negative) despite the ongoing court
case involving its joint chairmen. We concur with S&P that the company’s
financial profile has been buffeted by strong cash flow and low leverage
despite market volatility.
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CREDIT BRIEF
Company/ Issuer
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Sector
|
Country
|
Update
|
Impact
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Australia and New Zealand Banking
Group
(ANZ, Aa2/AA-/AA-)
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Banks/FIs
|
AU
|
ANZ’s FY14 (ended 30-Sep) net
interest income registered 4% YoY higher at AUD7.03bn due to commendable
loan growth of 8.0% (system growth: 6.1%), although group NIM has fallen to
2.13% from 2.22%. Gross impaired loans ratio improved to 0.55% from 0.88%.
Provisioning for impaired loans also strengthened to 136% from 101%.
|
Marketweight.
ANZ’s balance sheet strength generally improved. In addition to its better
asset quality, loan/deposit ratio has reduced to 130% from 132%.
Capitalization remains healthy, reflected by Tier 1 and Total capital ratios
of 10.7% and 12.7% respectively.
|
Agricultural Bank of China Ltd
(AGRBK, A1/A/A)
|
Banks/FIs
|
CN
|
3Q14 loan growth came in at 10.70%
(2Q14 system growth: 14.03% YoY). Net interest income increased 15.3% YoY
while NIM rose 0.16pp to 2.91%. NPL ratio increased to 1.29% from 1.22% a
year ago.
|
Marketweight.
AGRBK’s credit metrics still appear healthy despite the deterioration in
asset quality. Existing gross NPLs are significantly-provisioned at 335.1%
while the bank’s loan/deposit ratio of 63.3% reflects ample liquidity.
|
Bank of China Limited (BOC, A1/A/A)
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Banks/FIs
|
CN
|
On a YoY basis, 3Q14 net interest
income rose 14.68% to CNY238.8bn, effecting a 0.04pp increase in NIM to
2.26%, supported by a 11.0% growth in BOC’s loan base. However, NPL ratio
moved up to 1.07% from 1.02% in the same quarter last year.
|
Maintain
Marketweight. BOC’s credit metrics remain healthy despite the deterioration
in asset quality. Existing gross NPLs are well-provisioned at 207.7% while
the loan/deposit ratio of 71.7% reflects good liquidity.
|
DBS Group Holding Ltd (DBS)
(Moody: Aa1, S&P: AA-, Fitch:
AA-)
|
Banks/FIs
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SG
|
Stronger 3Q14 performance, YTD NP
+12% to SGD3.01bn, NIM improved 5bps to 1.67%, NPL decreased to 0.9% from
1.2% in 3Q13, stable capitalization ratio with Tier-1 and Total capital: 13.4%
and 15.6% respectively.
|
Maintain
marketweight. DBS’s credit metric remain solid on the back of its robust
asset quality with NPL of 0.9% and strong capitalization with total capital
of 15.6%.
|
Oversea-Chinese Banking Corp. Ltd
(OCBC)
(Moody: Aa1, S&P: AA-, Fitch:
AA-)
|
Banks/FIs
|
SG
|
Improved 3Q14 performance, YTD NP
+48% to SGD3.09bn, NIM increased to 1.69% (+6bps), improved asset quality as
NPL dropped to 0.7% (3Q13: 0.9%), weaker capitalization but still solid with
Tier-1 and Total capital of 13.2% and 15.5% respectively.
|
Maintain
marketweight. Asset quality for OCBC improved as NPL reduced to 0.7% (3Q13:
0.9%). Total capitalization remained robust at 15.5%.
|
United Overseas Bank Ltd (UOB)
(Moody: Aa1, S&P: AA-, Fitch:
AA-)
|
Banks/FIs
|
SG
|
Better 3Q14 result, YTD NP +10% to
SGD2.46bn, NIM increased mildly to 1.72% (3Q13: 1.71%), NPL remained low at
1.2%, improved Tier-1 and Total capital to 14% and 17% respectively.
|
Maintain
marketweight. UOB remains the top-capitalized bank in SG on total
capitalization of 17%. NPL is low at 1.2% reflecting its healthy asset
quality.
|
Bharti Airtel
(Bharti, Baa3/BBB-/BBB-)
|
Telcos
|
IN
|
2Q14 revenue and EBITDA rose 7.13%
and 12.11% YoY to INR228.5bn and INR77.1bn respectively. This was on the
back of a 9.5% and 7.5% increase in India- and Africa-based subscribers
respectively, compensating for an 8% decline in South Asia-based subscribers.
|
Maintain
Overweight. Bharti’s maintains healthy financial metrics in line with its
current ratings. Its EBITDA margin remained healthy at 33.7% (2Q13: 32.2%)
while debt/EBITDA ratio only marginally moved up to 2.06x (1Q14: 2.04x) a
marginally better blended ARPU (India only) of INR198 (2Q13: INR192).
Capex/revenue ratio has risen to 16.3% from 10.0% a year ago, mainly due to
2G and 3G data infrastructure needs.
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Air Asia
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Aviation/
Logistics
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MY
|
Proposed to issue MYR1bn Perpetual
Sukuk Programme (NR). Proceed to be utilized for capital expenditure
(MYR550m), refinancing (MYR300m) and the remaining balance for working
capital purposes.
|
Neutral.
Minimal impact to gearing. Treating the Perpetual Sukuk as capital, the gearing
ratio will improve to 1.9x (Jun-14: 2.2x) on pro-forma basis.
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