RHB FIC Credit Market Update - 20/05/15

20 May 2015

Credit Market Update

Investors Digesting New Issuances; Golden Agri (retap), Starhill New Issue in SGD; MBSB Rated AA1 for Tranche 3

REGIONAL

¨      Asian USD credits ended flat; quiet primary as investors digesting new prints in secondary market. CDS market inched 0.4bps tighter to 104.7bps as market remain supported by constant flows, especially from the overwhelming demand (still) on the primary issuances. IG space remains well bid, with focus on Chinese credits and SOEs while yield hunters started to profit take on some BBB property names after recent rally. Closer to home, PETMK and Indo Corps were among the actives.

¨      Rates continue to rise in Singapore; Golden Agri (retap), Starhill priced new issues. Benchmark rate SOR rose by 2-2.5bps yesterday to 1.59% (3y) and 2.06% (5y) as investors are guided by the end of rally seen in US Treasuries as the first Fed hike nears. Nonetheless, primary markets are relatively active, with Indo-planter Golden Agri-Resources successfully retap the market at 100.75 (c.5.2185%) for SGD75m for its 5.5% 4/18. Starhill Global printed SGD125m of 8y at 3.40%. Next in the pipeline, Century Sunshine Group (industrials) and First Sponsor Group (property) are having their investor roadshow beginning today and tomorrow, while Gallant Ventures Ltd set to retap the 3y at 7.00%.

MALAYSIA

¨      Yields tightened marginally; MBSB assigned AA1/Stable for its Tranche 3 Covered Bonds. Local bonds posted marginal gain on Tuesday, with MYR2.29bn transacted in govvies as investors focus were on the shorter dated papers. MGS 7/16 was the most active at 3.036%, ended flat with MYR408m done. GII 2/16 and 11/16 tightened 2.9bps and 1.7bps respectively to 3.131% and 3.332% with MYR350m and MYR280m changed hands. Onto corporates, we saw active market with MYR796m reportedly done. Danainfra 29-30 curve ended almost flat at 4.568%-4.58% with total MYR100m transacted, while Malakoff Power complex 18-23 gain attention after the listing of Malakoff on Friday, traded within 4.578%-5.06% range on MYR75m worth of trades. Golden Asset 11/17 tightened 23.9bps to 4.798% with MYR40m transacted, perhaps on improved confidence as issuer seek to tap SGD125m at 100.75 yesterday. On the FIs. Maybank IT1Cs 6.30% callable 2018 fell 1bp to 4.707%.

TRADE IDEA: USD

Bond(s)

Hutchison Whampoa Ltd (HUWHY) 4.625% 01/22 (A3/A-/A-) (Price: 108.4; YTM: 3.20%; Z+131.6bps) (Amt o/s: USD1.48bn)

Comparable(s)

HUWHY 3.25% 11/22 (A3/A-/A-) (Price: 100.28; YTM: 3.20%; Z+119.4bps) (Amt o/s: USD500m)

Relative Value

We favor HUWHY 01/22 among the HUWHY complex and opine that it offers about 10bps yield pickup against the curve as well as slightly longer-dated HUWHY 11/22. We believe that the well-diversified conglomerate offers investors resilient returns and defensive exposures to ports, telco and infrastructure businesses across APAC and UK. Additionally, we expect these businesses to scale following HUWHY’s corporate restructure with Cheung Kong and pending mega acquisition of O2 for over GBP9.25bn.

Fundamentals

We are comfortable with HUWHY's fundamentals given its:

1)     Consistent EBITDA and EBITDA margin improvement since FY11, from HKD34.7bn and 14.8 to HKD51.9bn and 19.05% respectively,

2)     Well-diversified portfolio with Telco (35% of EBITDA), Retail (Watson) (24%), Ports (16%), Property (15%), Infrastructure (5%), and other (5%) business operating across Europe (48% of EBITDA), Hong Kong (16%), Mainland China (15%) and other APAC (21%),

3)     Cash generation and debt level improvement with FCF rising to HKD26.6bn and net debt reducing to HKD130.3bn, 25.1% of equity and 2.5x of EBITDA (FY13: HKD21.5bn, HKD145.1bn, 30.5% and 3.2x),

4)     Credible management track record (controlled by tychoon Li Ka-shing) and commitment to maintain credit ratings at current levels despite active M&A activities.

All financials as at Dec-2014.