1 June 2015
Credit Market Update
Mixed
Session for APAC; MYR Credit Markets Turned Quiet; Hold DBSSP B2T2 23c18
SGD
REGIONAL
¨
Mixed session
for credits. Credit risk rose
slightly last Friday as the iTraxx AxJ IG inched up 0.8bps to close at 107bps.
UST rates bull steepened (1-4bps) into the end of the week, following a weak
GDP QoQ print of -0.7% QoQ (consensus: -0.9%; prior: 0.2%) and modest core PCE
QoQ of 0.8% (consensus: 0.9%; prior: 0.9%). From China, we noted stable
manufacturing and non-manufacturing PMI prints of 50.2 (consensus: 50.3; prior:
50.1) and 53.2 (consensus: N/A; prior: 53.4) respectively. On secondary
credits, trading was mixed following a 6.5% selloff on the Shanghai Index with
the IG space seen broadly stable while the HY space was weaker as yields added
14bps on average (source: Bloomberg), led by profit taking on real
estate names including Cogard 15, Fantasia 20 and Sunac 17-18. However, we
noted Kaisa bonds narrowed 28bps on speculation of a premium offer, the market
expecting 73 cents for any restructuring offer based on Sunac’s former
proposal. Today, Beijing Construction Engineering Group (NR) will begin
roadshows today for a USD issuance. Meanwhile, key economic data from the US
this week includes, PCE Core MoM/YoY, manufacturing PMI, factory orders,
jobless claims, nonfarm payrolls and unemployment rate. On the other hand, it
will be light coming from China, with just HSBC China composite and services
PMI numbers.
¨
SGD bond
yields broadly stable on lighter activity. The SOR curve experienced a downward shift of 1-2.5bps, resulting in
the 3y, 5y and 10y rates lowering to 1.62%, 2.02% and 2.56% respectively.
Average credit yields were stable, with gains seen in EZRASP 15, LMRTSP 15, and
SPSP 15. We also noted general tightening in HDBSP bond yields of 1.8bps
closely tracking SOR movements.
¨
MALAYSIA
¨ Quiet secondary flows; Encorp Systemblit on positive
outlook (RAM); Mudajaya’s 1Q15 result remained red, Eversendai’s 1Q15 earnings
doubled (Credit Brief). Secondary
markets were relatively quiet last Friday. Govvies activity merely at MYR1.7bn,
mainly concentrated in the short-duration papers as market players were
awaiting for US 1Q GDP (which came at -0.7% qoq) and key economic indicators
for the world largest economy this week (e.g. inflation and unemployment).
Meanwhile, corporate flows were below-average at MYR474m, dominated by GRE
bonds. BPMB complex topped the volume chart on combined trades of MYR115m, with
tranche 9/21 and 9/24 ended flat at 4.078% and 4.27% respectively. RAM
revised Encorp Systemblit’s outlook to AA2/positive on expectation of
improving stressed minimum FSCR over the next 2 years, underpinned by
continuous accumulation of cash buffer. Elsewhere, Mudajaya’s result stayed
in red zone for 1Q15 (-MYR19.6m) while we also saw improved result on
Eversendai (1Q15 NP doubled compared to previous corresponding quarter).
TRADE IDEA: SGD
Bond(s)
|
DBSSP B2T2 3.1% 2/23c18 (A+/Aa3/A+)(Price:
101.08, YTC: 2.687%; SOR3y+108bps)(Amount O/S: SGD1.0bn)
|
Comparable(s)
|
DBSSP B2T2 3.3% 2/22c17
(A+/Aa3/A+)(Price: 101.50, YTC: 2.405%; SIGB2y+107bps)(Amount O/S: SGD1.0bn)
|
Relative Value
|
Within the SGD bank space, we recommend to hold DBSSP B2T2
2/23c18 over DBSSP 2/22c17, extending duration by 1 year. The spread for
the two bonds has tightened to 28bps currently, from 42bps when we initiated
it back in 27-Feb. We view that the spread between both of the tranches
could tighten further given the smaller historical average spread of 25bps
over the past 1 year.
|
Fundamentals
|
DBS possesses a
healthy credit profile supported by:
1)
Diversified banking group with significant
exposures in Singapore, China, Hong Kong, South East Asia and South Asia;
2)
Strong domestic presence with estimated loan
market shares of 22%;
3)
Healthy asset quality with NPL of 0.9% and LLC of 161%;
4)
Strong capitalization with CET1 and RWCAR of 13.4% and
15.3%.
*all data as of Mar-15.
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