Wednesday, December 31, 2014


P R E S S  A N N O U N C E M E N T

                                                  FOR IMMEDIATE RELEASE


MARC has affirmed its long-term and short-term financial institution ratings of AAA/MARC-1 on The Bank of East Asia, Limited (BEA). The outlook on the ratings is stable. The affirmed rating reflects the bank’s capacity to meet its financial obligations on the Malaysian national rating scale.
Hong Kong-based BEA has a well-established banking franchise, characterised by sound asset quality and a healthy capital position. These factors, coupled with a strong earnings track record and funding profile, have continued to support the ratings. MARC has also considered the high likelihood of systemic support being extended to the bank based on its moderate to high systemic importance in Hong Kong. BEA is the largest independent bank in Hong Kong with a total asset size of HK$805 billion as at end-June 2014. Through wholly-owned subsidiary The Bank of East Asia (China) Limited (BEA China), the bank has steadily expanded its operations into mainland China and has the second largest distribution network among locally incorporated foreign banks in the country. BEA’s total advances to customers in China accounted for 47% of its loan book compared to 43% in Hong Kong as at end-June 2014.

MARC observes that in tandem with the sharp growth of lending activities in China, BEA is increasingly exposed to China’s challenging economic performance, resulting in weakening asset quality metrics. Impaired advances to customers in China rose significantly to HK$1,226 million while the gross impaired loan ratio increased to 0.44% in 1H2014 (2013: HK$840 million; 0.39%). The bank’s loan loss reserve ratio also declined to 59.9% (2013: 64.6%). Despite the decline, asset quality has generally remained sound, although further weakening in property prices in China could exert more pressure on the bank’s asset quality metrics. Nonetheless, this is expected to be mitigated by the relatively good underwriting standards the bank maintains and the proactive stance of its management to shift its business focus to more fee-based income. For 1H2014, loans for use in China grew at a slower pace of 11.6% year-on-year (2013: 18.5%).   

MARC notes the weaker loan growth in China was offset by higher growth in BEA’s domestic market, resulting in fairly strong loan book growth of 14.5% year-on-year (2013: 15.6%). BEA’s profits remained resilient despite higher impairment charges and pressure on funding costs in China. For 1H2014, profit after tax rose 6.0% to HK$3,580 million, although impairment charges rose sharply to HK$319 million (1H2013: HK$182 million) while the net interest margin (NIM) declined to 1.7% (2013: 1.9%). For 1H2014, net interest income increased by 10.2% to HK$6,241 million. However, non-interest income rose by 11.5% to HK$2,961 million in the same period due mainly to higher fee and commission income, which were attributed to BEA China’s shift to arranging more offshore loans. The cost-to-income ratio improved to 53.2% (1H2013: 54.2%) on higher total income, despite an 8.6% increase in operating expenses. The return on average asset and average equity were steady at 0.9% and 11.2% respectively relative to year-end 2013 levels.

BEA’s funding profile remained stable with a LDR of 72.1% as at end-June 2014. Customer deposits, mainly time deposits, grew by 4.6% to HK$559.5 billion during 1H2014, offsetting a decline in current accounts, and saving account deposits (CASA). The CASA-to-total deposit ratio decreased to 25.8% (2013: 28.1%). With regard to BEA China, its LDR of 68.3% is below the maximum regulatory limit of 75% in China. MARC notes that the recent relaxation of the LDR calculation rules in China should provide more flexibility to increase lending in China. 

BEA remains well capitalised as reflected by its CET1 capital ratio of 11.6%, Tier 1 capital ratio of 12.2% and total capital ratio of 15.7% as at end-June 2014 (2013:11.4%; 12.1%;15.9%). The capitalisation ratios are well above regulatory requirements. BEA’s CET1 level rose by 3.8% to HK$51.1 billion, partly attributed to internal capital generation. In addition, ordinary share issuances under the scrip dividend scheme raised HK$1,096 million in 1H2014 (1H2013: HK$992 million). Nonetheless, the bank’s total capital ratio was lower than the end-2013 levels owing mainly to an increase in risk-weighted assets and a decline in Tier 2 capital on phasing out of non-Basel III-compliant instruments. 

The rating outlook reflects MARC’s expectation that BEA will maintain its asset quality metrics and profitability measures that are commensurate with the rating band amid a challenging economic environment. The stable outlook also assumes no significant deterioration in the macroeconomic conditions of China and Hong Kong over the next 12 to 18 months. 

Contacts: Sharidan Salleh, +603-2082 2254/; Ezra Vendargon, +603-2082 2257/

December 31, 2014

Subject: RHB FIC Credit Market Update - 31/12/14

31 December 2014

Credit Market Update

Market Quiet before New Year; Value in BFB 1/27


¨      Kaisa bonds dipped on cash flow uncertainties. UST yields continued to inch lower (-2bps to -3bps) on risk aversion stemming from Eurozone QE and political uncertainties in Greece. In the HY credit space, Kaisa bonds have dipped c.35-40% in December amid the government’s ban on four of its projects and the resignation of its chairman. S&P has placed the company on NegWatch (BB-) and Moody's has downgraded the company to B1 from Ba3, under review for downgrade. In the USD credit space in Asia, we saw trades on BBLTB 23, TEMASE 39 and NOBLSP 20 which tightened marginally amid thin liquidity. JACI IG and HY spreads widened a tad to 189bps (+2bps) and 538bps (+3bps) respectively. iTraxx AxJ rose 2bps to 105bps.

¨      Markets largely quiet. We observed flattening in the SOR curve, with the 3y widening by +0.55bps (to 1.44%) while the 5y tightened by -1.2bps (to 1.91%). With New Year’s being celebrated tomorrow, markets are expected to be largely quiet, though we saw a smattering of interest on some property names yesterday. In China, the HSBC Dec Manufacturing PMI came in slightly lower than expected at 49.6 (consensus: 49.5), signaling potential sluggishness in parts of the economy.


¨      MGS flattened; Secondary flows remained thin. Govies space registered better flows of MYR882m, albeit still below YTD daily average of MYR2.2bn. We continue to see investors’ activity tilted towards the short-dated MGS. MGS curve flattened as yield for the short-tenure sovereign edged 4-7bps upwards with the 2y-MGS and 3y-MGS settled at 3.545% (+4.5bps, MYR122m) and 3.650% (+6.8bps, MYR90m) respectively. Yield for the mid-tenure benchmarks moved sideways – 5y-MGS (3.837%, +0.1bps, MYR9m) and 7y-MGS (4.052%, -1.3bps, MYR8m). Meanwhile, only few names exchanged hands in the PDS market on lackluster trading session of MYR119m, compared to YTD daily average of MYR439m. Among the notable names were Boustead 11/15 tighten 1.3bps to 3.886% (MYR35m); DanaInfra 11/34 inched 1.2bps upward to 4.85% (MYR20m); and HCS 5/15 closing flat at 3.984% (-0.3bps, MYR20m).


Bright Focus (BFB) 1/27 (AA2) (Last traded: 17-Dec; Price: 101.31; Yield: 5.549%; 10y-MGS+ c.142bps) (Amt O/S: MYR125m)


Kesturi 12/27 (AA3) (Last trade: 16-Dec; Price: 95.79; Yield: 5.200%; 10y-MGS+ c.107bps) (Amt O/S: MYR250m) Kesturi 12/32 (AA3) (Last trade: 9-Dec; Price: 97.96; Yield: 5.429%; 20y-MGS+ c.95bps) (Amt O/S: MYR120m)

Relative Value

BFB 1/27 may provide a tactical opportunity for pickup relative to peers.  Rated AA2, BFB 1/27 is c.35bps cheaper than AA3-rated Kesturi 12/27 for similar duration. We see room for narrowing given the one-notch rating difference despite its weak but still comfortable fundamentals.


We prefer BFB’s fundamentals vs Kesturi’s, although both appear weaker than industry average in our view. BFB enjoys a long remaining concession life of 31y, better liquidity as seen with debt to EBITDA of c.28.5x as at FY12 (Kesturi: 31.4x as at FY12) and average FSCR of 8.1x (Kesturi: 5.9x), although adjusted gearing is high at 12.9x (Kesturi: 2.8x).

Company/ Issuer





Vallianz Holdings

Oil & gas


The company is planning to acquire a 45% stake in Holmen Heavylift offshore (which owns 3 submersible launch barges) for USD2.9m cash

Neutral. Vallianz has sizeable cash reserves at USD54.9m (as at 3Q2014), hence the USD2.9m transaction will not deplete and impact its reserves much. Nevertheless, we are concerned for its tighter credit metrics with its Total Debt/ EBITDA at 12.7x (OSV peers: 12.1x) and EBITDA Interest Coverage at 2.89x (OSV peers: 3.8x).

RHB | Vietnam | Key Economic Activities Remained Resilient In December, Recovery On Track, 31 Dec 2014

Economic Research
31 December 2014

Economic Highlights

Vietnam’s industrial production sustained its growth at 9.6% y-o-y in December, albeit at a slower pace, from +11.1% in November, indicating resilient industrial activities in tandem with a sustained increase in external demand. Indeed, exports grew at a faster pace of 12.6% y-o-y in December, maintaining its double-digit growth rate, compared with a revised +10.3% in November. Retail sales, on the other hand, eased to +10.6% y-o-y in January-December period, from 11.1% in January-November. Meanwhile, the headline inflation moderated to 1.8% y-o-y in December, the lowest in the past 13 years, after inching lower to +2.6% in November. The moderation was attributed to petroleum price cuts on 22 Nov and 6 Dec which lowered transport costs by 3.1%. As a whole, the key economic data in December suggest that the economic recovery is on a more stable footing and will likely continue its pace in 2015.

Economist:  Peck Boon Soon  | +603 9280 2163
Economist:  Shafizal Shafaai  | +603 9280 2179

To access our recent reports please click on the links below:

Regional Daily, Maybank KE (2014-12-31)

31 December 2014
  • Malaysia Strategy - Flood disaster
  • Astra Agro Lestari (AALI IJ)
  • AirAsia Bhd (AIRA MK)
Malaysia Strategy - Flood disaster
Flood disaster: Assessing the impact
  • Floods in eastern Peninsular states have hit critical level.
  • Restoration to be costly, PLCs not materially affected.
  • No change in our stock, sector or market views/calls.
Astra Agro Lestari (AALI IJ)
At cruising speed
Share Price: IDR23,750 | Target Price: IDR28,000 (+18%) | MCap (USD): 3.0B | ADTV (USD): 3M
  • Maintain BUY but lower TP to IDR28,000 (from IDR35,000) as we cut 2015F earnings by 30.9%.
  • Production growth set to grow at 5%-10% CAGR over next three years as planted areas entering maturity age are more than enough to offset post-prime/replanting age.
  • Still one of the largest and better managed palm oil plantations in Indonesia with good corporate governance and strong balance sheet (near net cash).
AirAsia Bhd (AIRA MK)
Rest in peace flight QZ8501
Share Price: MYR2.74 | Target Price: MYR3.25 (+19%) | MCap (USD): 2.2B | ADTV (USD): 7M
  • Debris and human bodies are spotted off the Straits of Karimata and is confirmed to be that of flight QZ8501.
  • Efforts to retrieve all victims and search for the final resting place of the aircraft is still on-going, should be fairly soon.
  • Our earnings forecasts for AirAsia, BUY call and target price remain under review.
Malaysia Strategy - Fund flows
December fund flows
  • MYR2.8b foreign net sell in December, MYR6.8b YTD.
  • We continue to advocate a defensive strategy for equities.
  • No change in our market, sector and stock views/calls.

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