FW: RHB FIC Credit Market Update - 7/10/14

7 October 2014

Credit Market Update

APAC Markets to Gain Pace Post NFP; Value in MBB B3T2

REGIONAL                   

¨      Asian investors to pick up pace post-holidays. MY and SG markets reopened today while CN will reopen tomorrow following a week-long holiday. Last Friday's robust NFP sparked a jump in short-end UST yields, before it reversed on Monday’s US flat hourly earnings, which recorded below consensus and eased fears of building inflationary pressures. JACI spreads were broadly unchanged yesterday, with the IG and HY spreads standing at 182.2bps and 498.8bps respectively. We saw mixed flows on Asia USD credits with better buying concentrated on the long end in TH, MY and SG. Nevertheless, in the HK/China space, we saw better buying across the curve amid HK’s pro-democracy protests. Papers traded include CNOOC 21, CHIOLI 42 and NOBLSP 18 which tightened a couple of bps. On the primary front, India's NTPC (Baa3/BBB-/BBB-) and Power Finance (Baa3/BBB-/BBB-) are eyeing USD-denominated bond offerings. 

¨      Continued softer SGD trading. The 3y and 5y SGD swaps marginally widened by c.1bp (to 1.22% and 1.81% respectively) as the 3y/5y swap was mostly unchanged on Friday amid quieter trading as China was still out for its Golden Week holidays while Singapore would be celebrating Hari Raya Haji on Monday. Balanced flows were seen in bank names such as MAYMK and UOBSP perp with buying interest on property names like GUOLSP, SHUION and WHEELK. We expect both primaries and secondary trading to revert to normal levels this week.

MALAYSIA

¨      Investors focused on high quality corporate bonds; MGS curve shifted upwards amid 7y-SPK re-opening. Secondary markets for local govies and corporates ended the week with moderate trading volumes of MYR1.4bn and MYR414m respectively. We noted investor focus on high-quality AAA-rated and GG papers like BPMB, Cagamas and Manjung. Most active were BPMB 4/15 on MYR150m transactions closing lower at 3.429% (-7.7bps), followed by Cagamas 10/16 (-0.4bps, 3.797%, MYR30m) and Manjung 11/27 (-2bps, 4.77%, MYR20m). For govies, the 10y-GII attracted the most attention with MYR310m traded and closing flat at 4.13%. MGS benchmarks generally traded upwards with yields on the 3y, 5y and 10y-MGS narrowing to 3.467% (+0.9bps, MYR157m), 3.686% (+1.1bps, MYR2m) and 3.885% (+1.4bps, 3.855%) respectively, although the 7y-MGS outperformed the others to close at 3.639% (-15.9bps, MYR13m). Meanwhile, the MYR1.4bn 7y-SPK is set to re-open tomorrow with the auction closing today.

TRADE IDEA: MYR

Bond(s)	Maybank (MBB) MBB B3T2 1/24c19 (RAM: AA1) (MTM Price: 100.737; MTM Yield: 4.708%; Spread: 5y-MGS+c.102bps)
Comparable(s)	Public Bank (PBB) PBB B3T2 10/23c18 (RAM: AA1) (MTM Price: 100.851; MTM Yield: 4.538%; Spread: 5y-MGS+c.85bps) Public Bank (PBB) PBB B3T2 9/23c18 (RAM: AA1) (MTM Price: 101.002; MTM Yield: 4.522%; Spread: 5y-MGS+c.84bps)
Relative Value	We see value in MBB B3T2 1/24c19 for an attractive pick-up of 17-19bps over the similar-rated PBB B3T2 10/23c18 and 9/23c18.
Fundamentals	Fundamentally, both MBB and PBB possess healthy credit profiles: 1)     Strong domestic market shares; 2)     High capitalization with a tier-1 capital ratio of 13.18% and 16.15% (PBB: 10.4%, 13.8%); 3)     Healthy asset quality and robust coverage, reflected by an NPL ratio of 1.4% and LLC ratio of 107.6% (PBB: 0.65%, 117.6%); 4)     Moderate funding profile, evidenced by a loan-to-deposit ratio of 90.6% (PBB: 87%). *all data as of June-14.

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	Impact
China Property Sector	Property	China	China has loosened mortgage restrictions by increasing the pool of eligible homebuyers in applying for mortgage loans and increasing the amount that can be borrowed. Key among these initiatives includes the ability of second-time homebuyers who have fully repaid their first mortgage to apply for a loan that has similar conditions as a first-time homebuyer.	Positive. We believe that this is a timely move to address the slump in the China property market which began in 1Q2014. We opine that mass-market developers such as Country Garden Holdings (COGARD) and China Overseas land and Investment (CHIOLI) stand to gain from this policy change. Average new home prices in 100 Chinese cities surveyed fell -0.9% in Sept (-0.6% in Aug).