RHB FIC Credit Market Update - 26/5/15

26 May 2015

Credit Market Update

                                       

APAC Ended Flat; Property, REIT set to Lead Pipeline in SGD; Switch to BFB 1/29

REGIONAL                                                                                      

¨      Markets hold off for upcoming supply boost. Credit risk sentiment was stable during yesterday’s quiet session in APAC, the iTraxx AxJ IG stagnant at 105bps. Credit markets opened to a bear steepened (1-5bps) UST curve post Yellen’s guidance on rates, with yields adding 1-4bps in response. However, we noted real estate IG papers outperformed for the day as the sector’s average yields held firm, while bank papers widened 3.5bps in general. O&G credit yields inched up 1.7bps at close, while Brent crude prices saw virtually no change after settling at USD65.47/bbl. On today’s primary front, we expect China Energy Reserve & Chemicals Group Overseas Capital Co. (NR) to tap the markets for a potential 5.25% 2018 USD bond, price guidance starting at 100.375. In the pipeline, China National Bluestar (Baa3/BBB-/BBB-) and Global Logistic Properties Ltd (Baa2/NR/BBB+) commenced roadshows yesterday, while China Three Gorges Corp (Aa3/A/A+) will begin its own tomorrow. We reiterate this week’s heavy US economic data lineup of durable goods orders, PMI, new home sales, consumer confidence, jobless claims prints, GDP and inflation. In China, the expected releases are industrial profits as well as manufacturing and non-manufacturing PMI prints.

¨      SOR widened; FSGS and AREIT in the pipeline.  The 3y and 5y SOR both widened 4bps to 1.63% and 2.07% respectively at yesterday’s close. Secondary markets yields were flat resonating with the quiet US market which posted CPI on Friday and closed for a holiday last night. We observed better buyers for STSP 16, EZRASP 15 and YLLGSP 17; while SWIBSP 15-18 yields widened further. In the pipeline, First Sponsor (FSGS) (NR) announced a 3y SGD with an IPT of low 4%; and Ascendas REIT (AREIT) (A3/NR/NR) announced a 7y SGD at IPT 3.375%.  

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MALAYSIA

¨      Flows remained healthy; market focus on toll road space. Secondary volume remained robust at MYR610m, although investors took a breather from last Friday’s session which saw MYR1.2bn transacted. We noted trades mostly directed to longer-dated toll road bonds. PTPTN IMTN 3/24 led flows with MYR130m traded, shedding 0.5bps to 4.265%. Highways & interchange bonds constituted 23.94% of the daily volume with MYR146m trades, with PLUS papers accounting for combined trades of MYR80m. Meanwhile, govvies trading was short-end centric, led by GII 2/16 and MGS 9/16 which posted MYR150 and MYR49 in volumes respectively; the 3y benchmark rates added 3bps while the 5y, 7y, and 10y rates closed flat.

TRADE IDEA: MYR

Bond(s)	Bright Focus (BFB) BFB 1/29 (AA2) Last Traded: 20-May; Price: 106.26; Yield: 5.444%; MGS+c.137bps) (Amt O/S: MYR130m)
Comparable(s)	BFB 1/27 (AA2) (Last traded: 20-May; Price: 105.32; Yield: 5.089%; MGS+c.113bps) (Amt O/S: MYR125m) Kesturi 12/27 (AA3) (Last trade: 25-May; Price: 98.33; Yield: 4.93%; MGS+c.97bps) (Amt O/S: MYR250m) Kesturi 12/28 (AA3) (Last trade: 25-May; Price: 97.79; Yield: 4.98%; MGS+c.97bps) (Amt O/S: MYR230m)
Relative Value	BFB 1/29 offers a better tactical opportunity for pickup, we recommend to switch from BFB 1/27 which has tightened 46bps since our initiation on 7-Jan for an additional 36bps pickup in exchange for 2y longer maturity. We also opine that BFB 1/29 looks c.46-55bps cheaper than the AA2 curve as well as KESTURI 27 and 28. We see room for narrowing given the one-notch rating difference despite its weak but still comfortable fundamentals. Meanwhile, we noted the relatively smaller issuance size of MYR130m which may provide less liquidity. We prefer BFB’s fundamentals vs Kesturi’s, although both appear weaker than industry average in our view.
Fundamentals	We are comfortable with BFB’s profile given: 1.     Strong debt-servicing ability supported by strong traffic performance of the 26km Maju Expressway (MEX) registering traffic-volume growth of 5% YoY in average daily traffic (ADT) to 110k vehicles in 9M 2014 (2013: 7% YoY to 106k) due to its strategic link between KL, Putrajaya, Cyberjaya and KLIA; 2.     Moderate but improving leverage and debt servicing with debt/equity of 0.96x and interest coverage ratio of 1.79x (FY12: 1.00x and 1.15x); 3.     Net profit margin improving to 27.3% (FY12: 4.23%). All financials as at 31 Dec 2013.