RHB FIC Credit Market Update - 22/5/15

22 May 2015

Credit Market Update

                                       

Quieter Trading Expected Ahead of Yellen’s Speech; Cautious MYR Trades Before Inflation Print; Value in CENSP 10/16  

REGIONAL                                                                                      

¨      Quieter trading ahead of Yellen’s speech. Risk aversion, as measured by the iTraxx AxJ, was mostly unchanged as the index marginally widened by 0.3bps to 104.9bps. We saw continued interest in the HY space, led by pickings in China property names like Shui On, Shimao and Fantasia. We opine that trading may be quieter today as investors await for further FFR clues from Yellen’s speech that is due tomorrow morning our time. In the primaries, Shui On Land (NR) is printing a USD225m convertible perp at 7.5% while Global Logistic Properties (Baa2/ -/ BBB+) is planning to issue a REG S USD bond.

¨      SOR mostly unchanged; Interest in yielder names. The short-to-mid curves were largely unchanged, with the 3y and 5y closing at 1.62% and 2.06% respectively. We continued to see a drift towards HY papers such as OHLSP, TRIOIJ and KRISSP as investors may be seeking to hedge against a rising interest rate specter. The SGD primaries have quieten down again in the latter part of this week as investors eye further utterances and minutes from the Fed.  

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MALAYSIA

¨      Cautious trades before inflation numbers today; MGS 5/35 attracts 2.724x Bid-to-Cover. There was a dismal performance by both MGS/GII and corporate bonds with only MYR1.368bn and MYR429m reportedly done, respectively. Focus of the day was the new MGS5/35, priced at 4.254% with Bid-to-Cover of 2.724x, ended the day stronger at 4.237%. Onto corporates, the notable trades are Dana 11/29 at 4.539%, SEB 7/19 at 4.298% while another Sarawak-state bound Aquasar 7/21-7/29 traded within 4.368%-4.289% range. 11MP was tabled yesterday with the Government targeted growth of 5%-6% from 2016-2020, but the focus would be on the maiden CPI numbers post-GST, which set to be release in the afternoon.

TRADE IDEA: SGD

Bond(s)	Centurion Corp; CENSP 10/16 (yield: 4.74%; SOR+ 370bps)(O/S amount: SGD100m)
Comparable(s)	Banyan Tree, BTHSP 5/17 (yield: 4.48%; SOR+300bps) (O/S amount: SGD50m)
Relative Value	We initiate a preference for CENSP 10/16 due to robust fundamentals, expansion into the profitable foreign workers accommodation space in Singapore and attractive valuation. If compared to BTHSP 5/17, adjusted for difference in fundamental credit profile and duration, would provide at least a pick-up of between 20-25bps.
Fundamentals	We believe that Centurion Corp Ltd is a robust company with a strong outlook due to: 1)     Strong credit profile mitigates expanding leverage levels. Centurion Corp’s credit profile is comparatively stronger than its SG hospitality peers, with EBITDA Interest Coverage at 10.4x (peers: 4.1x) and Total Debt/ EBITDA at 4.7x (peers: 7.8x). Nevertheless, its leverage level is on the higher side due to its acquisition-led expansion strategy, with Total Debt/ Assets at 49%, though short-term liquidity is not a problem as it has sufficient cash to cover short-term debt. 2)     Strong occupancy rates with good EBITDA margins. Centurion is buffeted by the higher occupancy rate at 90%, URA regulation that regulates that only specific dwellings can be rented out to foreign workers, and good margins so far (3y EBITDA margin average: 66%) . 3)     Diversifying revenue base. Centurion has diversified from reliance on foreign worker accommodation in Singapore only to also include Malaysia, as well as student accommodation in the UK and Australia (collectively 17% of revenue). ¨                    ¨                  Singapore Hospitality Peers: Hotel Properties, Banyan Tree Holdings, Ascott REIT, Ascendas Hospitality Trust