RHB FIC Credit Market Update - 17/8/15

17 August 2015

Credit Market Update

           

Yields Widened as Sept-Hike Within Touch; CNY Devaluation to Hit HY; Hold on DBS B2T2 23c18 SGD

APAC USD CREDIT MARKETS                                                    

¨      US data suggesting Sept hike within touch, CDS ended flat. The iTraxx AxJ IG closed down marginally at 116.5 as regional equities market were relatively stable. Last Friday closing, the UST yields edged higher as the 10y rose 1bp to close c.2.20%, after strong July Industrial Production at 0.6% (consensus: 0.3%; prior: 0.3%) and University of Michigan consumer confidence print of 92.9 (consensus:93.5 ;prior: 93.1) as it remain supportive of a firmer US recovery which may signal a rate hike later this year.

¨      Similarly tracking UST movements, IG Corporates under our widened 4bps to 3.2% led higher by Noble Group 18-20, Chinese tech companies Alibaba 21, Baidu 19-25 and Tencent 19 as well as Yuexiu REIT 18. Likewise, HY credits traded marginally wider to 8.94% with Yingde Gasses 18 and Maoye International 17 widened by 30-90bps after both were downgraded last week, whereas we observed buying in the Chinese property space with names with as Evergrande 18-20s, Sunac China 18, Shimao 22 and Country Garden 21.

¨      On ratings movements, Yingde Gasses which is a manufacturer of industrial gasses was downgraded by Moody’s to B1 from Ba3 due to weaker liquidity profile after its short-term debts rose to CNY2.9bn vs cash of CNY1.1bn, further compounded by the weakness faced in the domestic Chinese steel industry. On the other hand, Everbright Securities was assigned a Baa3 rating with a stable outlook by Moody’s as it meets investors this week on its new USD issue.

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SGD CREDIT MARKETS

¨      SOR curve bear steepened; Gainers led by earnings; weak commodities and CNY devaluation still a drag. The SOR 3y, 5y and 10y widened 2-4bps to 1.875%, 2.245% and 2.765% respectively. We saw CBAAU 21-27 yields widened by 1-4bps to 4.24%-4.82%, which could be due to weak commodities and CNY devaluation impairing the sentiment on Aussie credits, despite progress in its AUD5bn capital-raising plans (i.e. having raised AUD2.1bn from institutional investors at offer price of AUD71.5 per share, c.13% discount to AUD82.12 last close, while the remainder will be raised from retail investors); and CITSP 16-24 widening 1-4bps to 1.85%-3.63% after reporting a 3.2% YoY drop in net profit to SGD133.5m. On the other hand, VALZSP was the best performer after posting 1H15 EBITDA growth of 58.5% YoY to USD58.5m; while SUNSP 16-20 also gained after 1Q FY3/16 operating profit grew to SGD27.4m (Jun-14: SGD0.9m). Meanwhile, mixed trading was seen for CATHAY as 2/17 tightened 8bps to 1.51% and 5/17 widened 8bps to 1.73% as investors continue to evaluate the impact of CNY devaluation.

MYR CREDIT MARKETS

¨      Corporate and sovereign yields moved higher. Credit yields generally shifted upward last Friday amid thin trading session of MYR365m. Among the top mover was DanaInfra 10/20 which rose 14bps to 4.219% since Feb-15. On the power sector, we saw SEB 7/29 and YTLPI 3/23 broadened 2bps-6bps to 5.012% and 4.658% respectively.

¨      MGS curve bear flattened last Friday with the 3y, 5y, 7y and 10y MGS benchmarks climbed to 3.53% (+18bps), 4.02% (+9bps), 4.16% (+7bps) and 4.21% (+4bps) respectively, as trading sentiment mainly driven by the depreciating Ringgit.

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TRADE IDEA: SGD

Bond(s)	DBSSP B2T2 3.1% 2/23c18 (A+/Aa3/A+)(Price: 101.57, YTC: 2.44%; SOR3y+56bps)(Amount O/S: SGD1.0bn)
Comparable(s)	DBSSP B2T2 3.3% 2/22c17 (A+/Aa3/A+)(Price: 102.06, YTC: 1.91%; SOR2y+26bps)(Amount O/S: SGD1.0bn)
Relative Value	Within the SGD bank space, we recommend to hold on DBSSP B2T2 2/23c18 which offer a good pickup of 53bps over DBSSP 2/22c17, despite extending duration by 1 year. DBSSP 2/23c18 has tightened by 10bps since our initial recommendation on the 27-Feb. We view that the spread between both of the tranches could tighten further given the smaller historical average spread of 30bps 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 c.22%; 3)     Healthy asset quality with NPL of 0.9% and LLC of 147%; 4)     Strong capitalization with CET1 and RWCAR of 13.4% and 15.3%. *all data as of Jun-15.

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CREDIT UPDATE

Company/Issuer	Sector	Country	Update	RHB FIC View
Gamuda Bhd (AA3)	Construction	MY	Gamuda’s 60%-owned JV, SRS Consortium, awarded as Project Delivery Partner for the MYR27bn Penang Transport Master Plan 2013-2030 (PTMP). Based on The Star’s news report, the company will construct the major parts of the project in Phase 1 – LRT project (MYR5.3bn) and a 20km expressway linking Bayan Lepas-Tanjung Bungah (MYR4.5bn).	Maintain marketweight. We estimate Gamuda’s construction orderbook to increase to c.MYR19bn or equivalent to 16x of FY14’s construction revenue. Nevertheless, we maintain marketweight view at this juncture, pending funding information for its MRT2 and PTMP projects. Gamuda 10/18 was seen last quoted at 4.233%.