Mah Sing Group - Solid start to 2015 BUY, 28 May 2015

We maintain our BUY call on Mah Sing Group with an unchanged fair value of RM3.00/share (at a 15% discount to NAV). Mah Sing delivered a strong 1Q15 net profit of RM99mil (+18% YoY). We deem its results to be in-line.

Property billings recorded a 24% YoY growth to RM707mil, backed by unbilled sales of RM5.1bil (~2x its FY14 property development revenue). Property EBIT margins dipped slightly by 0.9ppt YoY to 17.6% owing to a greater mix of affordable residential products.

Up to 22 April, new property sales was RM761mil (1Q15: RM560mil) against its full-year target of RM3.4bil. This is commendable, in our view, given the shorter working period due to the Chinese New Year break.

Take-up rates for signature projects remain promising: (i) Southville City – 85% for the first seven blocks (93% if excluding the 7th block launched in April); (ii) D’Sara Sentral (1st block – 86%; 2nd block – 70%; shops – 85%; SoVo: 70%); and (iii) Lakeville Residence – 88% for first three condo blocks; shop lots – 69%.

Tellingly, the units for the 7th block at Southville will be priced from RM480k onwards, which is still within the affordable range of <RM500k, and represents a healthy step-up in pricing from ~RM318k when the 1st block was launched in 4Q13.    

Management expects buying momentum to recover in 2H15 following the implementation of GST. We similarly expect Mah Sing’s pre-sales to accelerate in the coming months. The group’s focus on affordable homes (84% below RM1mil; 44% below RM500k) in good locations should continue to be well received. 

New launches for 2H15 include the upcoming Festival Lakecity integrated development within Puchong’s CBD, starting with a preview of executive suites. In Johor, Bandar Meridin East will debut with affordable linked homes (from RM330k onwards) targeting local buyers.

Mah Sing has recapitalised its balance sheet by raising ~RM1.2bil through a rights issue and more recently, perpetual sukuk. Such a move enables the group to capitalise on any value-accretive land-banking deals. The proposed bonus issue (1-for-4) of up to 607mil new Mah Sing shares will go ex on 8 June (listing: 11 June). 

Mah Sing is our top large-cap property pick. It is trading at a deep 40% discount to its NAV with a sizeable GDV pipeline of RM44bil across a diverse range of attractively priced products that target first-time homebuyers and those below 40 years old (~70%). The 108,000ha Malaysia Vision Valley mooted under the 11th Malaysia Plan to complement Klang Valley’s growth, bodes well for Mah Sing’s Seremban landbank.    

      

RAM Ratings revises outlook on Tan Chong Motor's ratings to negative

Published on 28 May 2015

RAM Ratings has revised the outlook on Tan Chong Motor Holdings Berhad’s (TCMH or the Group) long-term ratings to negative from stable. Concurrently, the short-term P1 rating of the Group’s RM1.50 billion CP Programme (2014/2021) and the AA2 rating of its RM1.50 billion MTN Programme (2014/2034) have been reaffirmed. Similarly, we have reaffirmed TCMH’s corporate credit ratings of AA2 and P1.
The revision of the outlook is premised on our concern that the Group’s cashflow-protection measures and margins will remain pressured by intense competition in the automotive industry and the weak ringgit, amidst dampening demand post-implementation of the GST.
In FY Dec 2014, TCMH’s funds from operations (FFO) debt cover dropped to 0.16 times from 0.24 times a year earlier, significantly below our expectations. Meanwhile, its operating profit before depreciation, interest and tax margin almost halved to 3.9% from 7.5%, following a price war between automotive players and more costly completely-knocked-down (CKD) kits as a result of the depreciating ringgit. “If these factors persist, we expect a lower FFO debt cover ratio of around 0.10-0.15 times for TCMH in FY Dec 2015,” notes Kevin Lim, RAM’s Head of Consumer and Industrial Ratings.
A lower debt level as a result of its securitisation programme and the paring down of inventories had helped TCMH’s gearing ratio to ease to 0.51 times as at end-December 2014 from 0.54 times previously. “As the Group targets a lower inventory level, we expect its gearing ratio in the region between 0.50-0.60 times,” adds Lim.
The ratings have been reaffirmed, in the meantime, to allow the still-changing industry dynamics and consumer sentiment as well as forex movements (in particular the ringgit) to stabilise. These inherent factors will continue to dictate the Group’s operating performance to a certain extent. For 1Q FY Dec 2015, TCMH’s facelifted Almera and new-model X-Trail had been well-received. This together with the introduction of a new model in 2H 2015, more favourable CKD kit pricing and the management’s intention to reduce inventory (mostly debt funded) could set the Group on a recovery path. If these positive developments come together, TCMH’s FFO debt cover should recover to around 0.20-0.30 times.
The outlook could revert to stable if TCMH is able to demonstrate resilience despite strong competition posed by its rivals and unsettled forex movements in respect of the USD and the ringgit. An FFO debt cover of 0.25-0.30 times alongside improved margins, and the maintenance of the Group’s balance sheet strength, will also be required for such a revision.
That said, the ratings continue to be driven by TCMH’s established position in the domestic automotive industry as it has consistently been the third-largest non-national car player over the past decade. The Group’s traditionally conservative balance sheet and its intention to pare down its debt levels further support the ratings. Furthermore, the Group’s liquidity profile is deemed to be healthy, supported by its cash balance, highly liquid money-market funds and unutilised banking facilities.
The abovementioned strengths are, however, moderated by fierce competition in the increasingly mature automotive industry, changes in regulatory policy, cyclicality of the industry, and the risk of non-renewal of TCMH’s various distributorship franchises. Moreover, the Group’s performance is exposed to fluctuations in forex rates, particularly in respect of the USD and the Japanese yen. Additionally, in line with its poorer operating performance, weaker operating cashflow metrics have weighed on its credit profile.
Media contact
Sahil R Kamani
(603) 7628 1084
sahil@ram.com.my

RHB FIC Credit Market Update - 28/5/15

28 May 2015

Credit Market Update

                                       

New Supply in Focus; Sunac Abandons Kaisa Acquisition; Malakoff Delivers Strong Post-IPO Results; Hold Genting 6/22 MYR  

REGIONAL                                                                                      

¨      Credits generally stable amid busy primary session; Sunac abandons Kaisa acquisition. Credit protection costs rose again, reflected by the iTraxx AxJ IG inching up 0.7bps to 106bps. Credit markets opened on a firm tone with a bull-flattened UST curve (2-9bps) and a decent new supply lineup. China also released stronger industrial profits data, an increase of 2.6% YoY and the first annual rise since Sep 2014. At close, secondary yields were firm, with IG banks trading flat overall while IG real estate narrowed 4-5bps, again outperforming HY counterparts, which saw yields tightening 2-3bps. We noted HY real estate player, Kaisa Group, as the biggest loser yesterday after Sunac China Holdings abandoned its proposed USD1.2bn acquisition of Kaisa, its bonds settling 73bps wider on average. In the O&G space, we saw a further 2-3bps in yield compression in spite of Brent crude prices coming down 2.6% to USD62.06/bbl.

¨      As for yesterday’s primary session, new bond sales included Garuda Indonesia’s (NR/NR/BBB+idn) USD500m 5y sukuk priced at 6.125% (IPT: 6.25%), Guangzhou Communications Investment Group’s (Baa1/NR/A-) USD400m 3y notes at T+205bps (IPT: T+230bps), Fantasia Holdings Group’s (B2/B+/NR) USD200m 3y notes at 11.8% (IPT: 12%), and CIFI Holdings Group (Ba3/BB-/BB-) with USD400m 5NC3 notes at 7.875% (IPT: 8.125%). Today, Global Logistics Properties Ltd (Baa2/NR/BBB+) is expected to sell USD 10y notes at an IPT of T+210bps, while China National Bluestar Group Co. (Baa3/BBB-/BBB-) will be tapping for corp-guaranteed USD 3y and 5y notes at IPTs of T+240bps and T+260bps respectively. Adding to the pipeline, Bank of Communications (A2/A-/A) is eyeing a USD AT1 issuance.

¨      SOR curve flattener; Primary activity by CENSUN, GUOLSP and BTHSP. SOR curve flattened with 3y rising 1.5bps to 1.635% and 5y declining 1bps to 2.043. Secondary markets had better buyers for SWIBSP 16-18, TGRSP Pc20, GUOLSP 16, and CITSP 17; while better sellers were seen for AREIT 17, SPSP 20, CAPLSP 20-25 and SUNSP 18. In the primary market, Century Sunshine Group (CENSUN, NR) priced its SGD75m 3nc2 at 7.2% (1.3x BTC), while GLL IHT (guaranteed by GUOLSP, NR) announced SGD 3.25y IPT 3.65% and Banyan Tree (BTHSP, NR) to sell 5y IPT 5%.  

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MALAYSIA

¨      Toll road bonds tightened; 1MDB does not pose systemic risk (Moody’s); Malakoff registered strong results (Credit Brief). Govvies closed marginally lower as benchmark yields inched 1bps upward on general, with investors preferred to stay sidelines waiting for more guidance from the global front such as US GDP data to be released tomorrow. Meanwhile, Moody’s views that 1MDB does not pose systemic risk to Malaysia’s public finance and economy. In the corporate market, total volumes breached MYR627m with investors remained focused on the mid-to-long duration bonds. Notably, we saw tightening by couple of bps in toll road names such as BFB, Kesas and Kesturi. Elsewhere, Khazanah is looking to issue the first Sukuk Ihsan bond 7y at price guidance of 4.3% (issue amount to be determined) for the funding of Yayasan AMIR’s Trust School Programme.

TRADE IDEA: MYR

Bond(s)	Genting Capital (Genting) 6/22 (AAA) (Last trade: 26-May; Price: 99.95; Yield: 4.428%; 7yMGS+ c.65bps) (Amount o/s: MYR500m)
Comparable(s)	PLUS 1/22 (AAA) (Last trade: 11-May; Price: 100.87; Yield: 4.248%; 7yMGS+ c.47bps) (Amount o/s: MYR700m). MACB 12/22 (AAA) (Last trade: 21-May; Price: 102.11; Yield: 4.349%; 7yMGS+ c.57bps) (Amount o/s: MYR1.5bn).
Relative Value	We reiterate our recommendation for Genting 6/22 which offer a pickup of 8bps-18bps over similarly rated MACB 12/22 and Plus 1/22. The scarcity of supply from gaming sector could entice demand for the paper with potential tightening from current level.
Fundamentals	The debt facility of Genting Capital is unconditionally and irrevocably guaranteed by Genting Bhd. The latter’s credit profile is supported by its strong balance sheet. As at FY14, Genting’s gearing and debt-to-EBITDA is low at 0.24x and 1.9x respectively. In addition, the Group has ample cash balance and financial assets of MYR25bn compared to total debt of MYR12.5bn (i.e. net cash).

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	RHBFIC View
Malakoff Corporation Bhd (Malakoff) (AA-)	Power	MY	1Q15 NP increased to MYR120m from MYR15m in the previous corresponding quarter, attributable to higher capacity factor registered by Tanjung Bin Power and consolidation of PD Power. Gearing remained stable at 4.4x. Mild decreased in debt-to-EBITDA to 7.2x (FY14: 7.4x).	Neutral. Debt profile remained intact. Proceeds from IPO will be used to redeem the MYR1.8bn junior bond, which in turn save c.MYR113.4m of interest expenses (based on coupon of 6.3%).

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RHB FIC Rates & FX Market Update - 28/5/15

28 May 2015

Rates & FX Market Update

UK Maintains Fiscal Consolidation Plans; BoE Reduces Meeting Frequency; JPY at All-time Low; Concerns Over China Supply Risk

Highlights

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¨    The UST flattening trend persisted amid month-end duration extension trades; the strong 5y UST auction sold at 1.56%, highest since December 2014 and anchored by non-primary dealers (BTC:2.46x vs prior 2.35x). Technicals suggest similar demand at the 7y UST auction on top of some risk aversion towards European assets. In UK, although no major new measures were introduced via the Queen’s speech at the state opening of the new parliament, it highlighted the focal points for the UK government in the year ahead, including the EU referendum and further public spending cuts in line with its fiscal consolidation plans alongside a tax lock bill. This further reinforces our view for a delay in BoE’s rate lifoff towards 2016. Additionally, a bill will be introduced to allow BoE to align both the MPC meeting and inflation report publication, and reduce the frequency of MPC meetings from 12 to 8 per annum on top of joint MPC and FPC minutes. Gilts traded fairly stable overnight amid rising expectations for a pushed back BoE rate hike to 2016. Elsewhere in EU, EGBs remained sentiment driven by Greek debt developments as peripheral EGBs posted strong gains following Germany’s affirmation that Greece is likely to be able to repay its EUR300m debt. Optimism from positive GDP prints from peripheral EU due later this week is likely to continue supporting gains on peripheral EGBs.

¨    In Asia, China’s CGB curve bear steepened as investors begun to raise concerns on the high bond supply risk in China following several successful auctions by the Chinese local governments. We expect the influx of supply to weigh on the long end of CGB curve but for further PBoC easing to keep short end rates anchored. 

¨    JPYKRW pushed lower to its all-time low of 8.9398, testing BoK’s tolerance for the weaker JPY. Concerns of declining export competitiveness may compel BoK to intervene in the FX market, with its quarterly report citing an average rate of 9.24 as a tolerable range for Korean exporters. We look to enter long position on this pair as it trades close to its support of 8.8761.

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