Friday, April 29, 2016

RAM Ratings has revised the outlook on the AA3(s) issue rating of Country Garden Real Estate Sdn Bhd (CGRE), to negative from stable.

Published on 29 April 2016
RAM Ratings has revised the outlook on the AA3(s) issue rating of Country Garden Real Estate Sdn Bhd (CGRE), to negative from stable. This follows an unexpected spike in the debt load of Country Garden Holdings Company Limited (Country Garden or the Group) in 2H 2015 for land purchases that represented a significant deviation from management’s guided level, thereby leading to a deterioration in the Group’s financial metrics.
Contrary to our previous expectation that its growth will take a more measured approach, Country Garden is now ramping up its pace of expansion which will be fuelled by a boost in property launches following aggressive land acquisitions in 2015. Significantly, the Group is shifting more of its focus onto property projects in tier-1 and tier-2 cities in China. About 75% of the enlarged land purchases in 2015 and the bulk of its new project launches this year are in those cities. This stronger push into tier-1 and tier-2 cities remains in line with Country Garden’s efforts to achieve a more balanced property portfolio overall and its diversification into those cities has shown some level of success. Nevertheless, the negative outlook reflects RAM’s concerns that the Group’s financial metrics may not recover sufficiently in the near term amid elevated debts and lower operating margins.
As at end-December 2015, Country Garden’s adjusted net gearing ratio swelled to 0.92 times – far exceeding our previous expectation of about 0.6 times. Country Garden’s debts rose unexpectedly in 2H 2015 due to land acquisitions, bringing its total cash outlay for land-banking to RMB37 billion last year – nearly double its budgeted RM20 billion. Together with RMB16.5 billion of perpetual capital securities raised in December for an acquisition that had fallen through, the Group’s debt burden surged RMB45 billion (+70% y-o-y) to RMB109.3 billion. This debt level exceeded substantially our expectation and was a departure from our understanding that greater financial discipline had been instilled. Meanwhile, Country Garden’s operating cashflow debt cover (OCFDC) slid to 0.24 times in 2015 (projected: at least 0.3 times), despite having met its targeted contracted sales. As the Group has committed to a still-high level of land purchases, the recovery of its financial metrics in the near term could be challenging amid elevated debts.
The Group achieved RMB140.2 billion of contracted sales in 2015 (+7% y-o-y), of which 52% stemmed from tier-1 and tier-2 cities – underlining some traction in its strategy to diversify into these cities. Encouraging contracted sales of RMB42.9 billion had been achieved in the first 3 months of this year, in view of the Group’s targeted growth in contracted domestic sales of to RMB168 billion (+20%) for 2016. Expansion this year will be supported by saleable resources of a large RMB300 billion, the bulk of which will stem from tier-1 and tier-2 cities. However, risks could heighten given a potentially longer cash cycle, different regulatory and business practices, as well as customer preferences especially in newly entered tier-1 and tier-2 cities.  We are also mindful of the impact of cooling measure on tier-1 and tier-2 cities given the phenomenal rise in prices in some. Moreover, debt-funded land acquisitions will reduce its flexibility to defer launches if the market softens.
Although Country Garden’s revenue climbed up 34% y-o-y to RMB113.2 billion in fiscal 2015, its margins continued to slip. The Group’s margin on operating profit before depreciation, interest, and tax thinned to 13.8% in fiscal 2015 (fiscal 2014: 17.9%), chiefly because some properties sold in 2014 at reduced prices amid cooling initiatives had been booked. Despite a more aggressive move into tier-1 and tier-2 cities where prices in general are still improving, we do not foresee significant profitability improvement in the near term; the benefit of better selling prices in those cities may be largely offset by more expensive land. With improved average selling prices, we understand that the overall gross profit margin on contracted sales secured in 1Q 2016 had come in at about 25%. Meanwhile, the Group’s pre-tax profit unexpectedly dipped to RMB14.8 billion in fiscal 2015 (fiscal 2014: RMB16.4 billion), dragged down by sizeable forex losses on its borrowings.
Notwithstanding the above weaknesses, Country Garden’s ratings continue to be supported by its position as a large-scale and entrenched Chinese property player, its integrated business model, and its fairly diversified geographical footprint with minimal project-concentration risk.
The rating outlook on CGRE could be reverted to stable if the Group’s OCFDC recovers to a sustainable minimum of 0.3 times and its adjusted net gearing ratio eases to 0.7 times or lower. To meet these thresholds, Country Garden may have to noticeably improve further its operating cash cycle even if its sales targets are met. The Group will also have to demonstrate sufficient financial discipline in its debt-funded land acquisition.
The issue rating reflects unconditional and irrevocable corporate guarantees extended by Country Garden, Bright Start Group Limited and Top Favour Holdings Limited, on a joint and several basis to CGRE’s to Islamic Medium-Term Notes Programme of RM1.5 billion in Nominal Value (2015/2035). Therefore, the issue rating reflects the credit linkage to Country Garden (as the strongest obligor) and the credit fundamentals of the Group.
Media contact
Peter Kong, CFA
(603) 7628 1029

Muhammad Ibrahim the New BNM Governor; Sembcorp Marine’s 1Q16 Net Profit Plunged 49%

28 April 2016

Credit Markets Update
Muhammad Ibrahim the New BNM Governor; Sembcorp Marine’s 1Q16 Net Profit Plunged 49%
¨      APAC USD Credit Market: Asian CDS and HY were relatively unchanged at 140.4bps and 7.40% respectively while IG spreads edged up c.2bps to 211.8bps ahead of the FOMC announcement. Meanwhile, Treasuries surged as yields declined 4-8bps with 10y at 1.62% boosted by Fed’s decision to leave interest rates unchanged while reiterating gradual future hikes and noting the slower pace of economic growth. On rating front, Gemdale Corporation, a Chinese residential property developer, was downgraded to Ba2/Sta from Ba1/Neg underpinned by low gross profit margins, increased commitments to JV projects and an expected deterioration in its credit metrics.
¨      SGD Credit Market: Perennial Real Estate upsizes issuance; Sembcorp Marine results dip. There was a 3.5-4bp tightening in the short-to-mid SOR curve, with the 2y and 5y closing at 1.67% and 2.06% respectively. Rebounding oil prices (which closed at USD47.2/bbl yesterday) spurred continued interest into HY names like BREAD, GALVSP and OLAMSP. Sembcorp Marine (NR) 1Q2016 revenue fell by 30% to SGD918m, while its net profit saw a 49% decline to SGD55.6m mainly due to fewer rig building projects. Its credit profile has tightened considerably with Debt/ Assets at 41% (1Q15: 24.4%), though short-term liquidity remains as cash/ST debt stands at 1.3x. In the primaries, the Perennial Real Estate Holdings (NR) has upsized its 4y 4.55% issuance to SGD100m (from SGD75m) due to strong reverse enquiries.
¨      MYR Credit Market: Deputy governor Datuk Muhammad Ibrahim has been appointed as the new BNM governor effective 1-May. The new appointment was well-received, with the USDMYR rebounding 0.28% to 3.9135 in tandem with the rising Brent price. The Govvies market ended mixed where the 7y MGS and GII benchmarks were the most active closing at 3.82% (+2bps) and 3.94% (-2bps) respectively before the MYR3bn 7y MGS Reopening tender today with the WI last seen quoted at 3.82/3.79. Corporate flows more than doubled to MYR497m mainly from the AAA space. Notably, Khazanah-related, Rantau 3/29 and Danga 2/26 rose 1bp to 4.649% and 4.43% respectively. In the primary market, Orix Leasing (AA3) priced a MYR50m 1y at 4.17%.

US 1Q 2016 Economic Growth The Slowest In Two Years As Consumers Saved More And Businesses Held Back On Investments

Economic Research
29 April 2016
Global News

Economic Highlights

US 1Q 2016 Economic Growth The Slowest In Two Years As Consumers Saved More And Businesses Held Back On Investments

Bank Of Japan Leaves Monetary Policy Unchanged Despite Weakening Economic Outlook

Singapore’s Unemployment Rate Remained Unchanged In 1Q

China’s President Xi Urges Intensified Efforts To Advance Rural Reform


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Maybank GM Daily - 29 Apr 2016

*      While Fed’s inaction did not move the dollar, the same cannot be said for the JPY. The latter jumped >3% after BOJ retained its policy mix and USDJPY was last seen around 108.  US data was mixed. 1Q GDP missed consensus with a print of 0.5%q/q though breakdowns revealed stronger underlying. Personal consumption grew 1.9%q/q while core PCE jumped to 2.1%q/q, well above the average forecast of 2.1%. Still, overnight sentiments soured with DJI, S&P 500, NASDAQ down around 1% each. That pretty much sets the tone for Asia open.
*      While the DXY index was dragged lower by the JPY strength, Asian currencies were well boosted. MYR and KRW still lead the pack, up +0.4% and +0.3% respectively. Ahead of a quieter week, expect positioning to favour the Asian currencies. 
*      In the day ahead, US has personal income, real personal spending, Mar Core PCE and Univ of Mich. Sentiment. Europe has CPI estimate and GDP for 1Q

G7 Currencies
*      DXYWill Apr Low Hold? DXY fell back to 2016 lows. Move lower in the dollar index was mainly led by the decline in USDJPY as markets’ hopes for BoJ monetary easing were not met yesterday. Against other majors such as EUR, GBP, AUD, the USD was less weak. USD/AXJs were broadly weaker, led by USDJPY moves.  In data released overnight, 1Q GDP was slightly below market expectation (+0.5% q/q vs. 0.7% Cons) but core PCE jumped to 2.1% q/q (vs. 1.3% prior). We continue to reiterate our long-held view of 2 hikes in 2016 – one in Jun and another hike in Dec. DXY was last seen at 93.70 levels. Bullish momentum on daily chart is waning and stochastics is falling. Next support at 93.60 (Apr low) before 92.20 (38.2% fibo retracement of 2014 low to double top in 2015). Resistance at 95.70 (5 0DMA). Day ahead brings Fed's Kaplan Speaks, Personal Income, Real Personal Spending (Mar), PCE Core (Mar), U. of Mich. Sentiment (Apr F) on Fri.
*       EURUSD – Upside Risk. EUR continues to inch higher within a muted range of 1.1290 – 1.1370. EUR was last seen at 1.1360 levels. Bearish momentum on daily chart is waning and stochastics is rising. These suggest upside pressure. Monthly and weekly momentum and oscillator indicators are bullish bias. Key resistance at 1.15 levels. A break to the upside on daily/weekly close basis could see an extension towards first objective of 1.1850 (38.2% Fibonacci retracement of 2014 high to 2015 low), before the final objective of 1.2260 (50% fibo). Support at 1.12 (50 DMA), 1.1070 (100, 200 DMAs). Day ahead brings FR GDP (1Q A), EC CPI Estimate, GDP (1Q A) on Fri.
*        GBPUSD Testing 1.4670 Resistance Again. GBP continued to push higher again amid broad USD weakness overnight. Monthly, weekly, daily momentum and stochastics are all bullish bias. Resistance at 1.4670 (2016 high). Break above on daily/weekly close basis could see an eventual move towards 1.4880 (200 DMA). Support at 1.4470 (76.4% fibo retracement of 2016 high to low), 1.4350 (61.8% fibo), 1.4250 (50% fibo). Day ahead brings GfK Consumer Confidence (Apr), Mortgage Approvals (Mar) on Fri.
*       USDJPYLimited Downside. Markets’ hopes for BoJ easing were disappointed as BoJ kept monetary policy stance unchanged with no additional easing. This was not in line with market expectation but in line with our expectation – we expect BoJ to stand pat till upper house elections are done in Jul; and expect jawboning in the meantime. USDJPY extended its decline this morning – lows seen at 107.75 levels. And USDJPY weakness is taking USD/AXJs lower as well. Monthly, weekly, daily momentum indicators are bearish bias. Next support at 106.90 levels (38.2% fibo retracement of 2016 low to 2015 high). Break that on weekly close should see an extension of the decline towards 101 levels (50% fibo). Resistance at 112.60.
*      NZDUSD – Upside Risk. NZD extended its upmove from yesterday amid broad USD weakness. Last seen at 0.6980 levels. The pair continues to trade well-within the upward sloping trend channel - lower bound at 0.6745; upper bound at 0.7130. Bearish momentum on daily chart is waning while weekly momentum is bullish bias.  Could see further upside risk.
*        AUDUSD – Within The Upward Sloping Trend Channel. AUD bears need to clear the 50-DMA at 0.7540 for greater extension.  Right now, the pair was last seen around 0.7640. Momentum indicators are bearish but we see risks to the upside given the depressed USD tones, AUDUSD still within the upward sloping trend channel and general Asian strength thanks to BOJ.  Support is seen at 0.7500 but that could be largely out of reach. Rather, we are more bias towards  a revisit of the resistance at 0.7720 (Mar high) before the next at 0.7850. RBA Debelle Gives Speech on today. More news on the upcoming budget as PM Turnbull plans to launch smart cities to boost infrastructure funding and improve housing affordability.
*      USDCAD – Keep The Trend Your Friend. The pair was last printed 1.2540 and interim support is seen at 1.2574 (76.4% fibo retracement of the 2015 rally) has been broken. Daily momentum and stochastics are not indicating a clear bias so we would prefer to keep the trend our friend. IP, GDP data  are due tonight. Clearance of the 1.2574-support  opens the way towards the 1.24-figure. Rebounds to meet barrier at 1.2830 (21-DMA).

     Asia ex Japan Currencies
*      The SGD NEER trades 0.37% above the implied mid-point of 1.3468 with the top end estimated at 1.3200 and the floor at 1.3737.
*       USDSGD – Break of 1.34 Suggests Further Downside.  USDSGD fell amid the decline in USDJPY and lower than expected USDCNY fix this morning. Pair was last seen at 1.3415. Momentum remains bearish bias. Next support at 1.3405 (50% fibo retracement of 2014 low to 2016 high). Break on weekly close basis puts 1.3160 in sight. Resistance remains at 1.3650 (38.2% fibo, 50 DMA). 
*       AUDSGD – We Are Bias Upside. AUDSGD waffled around 1.0250 as we write this morning. Weekly, daily stochastics have eased from overbought conditions and momentum on daily chart has started to tilt lower. Support is seen at 1.0180 (100-DMA) but similar to our AUD view, we are bias upside. Resistance at 1.0380 (previous high).
*       SGDMYR – Consolidate with Bias to Downside. SGDMYR was little changed. Cross was last seen around 2.8970 levels. Bullish momentum shows very early signs of waning while stochastics is showing tentative signs of falling. Resistance remains at 2.9165 (23.6% fibo retracement of 2015 high to 2016 low), before 2.95 (38.2% fibo). Support remains at 2.85 (2016 low).
*       USDMYR – Inching Lower into 3.85 – 3.91 Range Intra-day. Decent demand from 7y MGS auction yesterday (b/c ratio of 2.04x). USDMYR fell amid USDJPY weakness and gains in oil prices. Pair was last seen at 3.8840 levels. Monthly momentum remains bearish. Mild bullish momentum on daily chart is showing signs of waning. Next support at 3.8440 (2016 low); below that puts 3.80 in sight. See further downside pressure intra-day in the range of 3.85 – 3.91. No key data for release this week.
*       1s USDKRW NDF – Downside Pressure Intra-day. 1s USDKRW NDF reversed gains following BoJ no-move on monetary policy which saw USDJPY taking a dive. Pair was last seen around 1135 levels. Bullish momentum on daily chart is waning again.  Support remains at 1126 levels (50% fibo retracement of the up-move from 2014 low to 2016 high), before 1100. Resistance at 1147 (21 DMA).
*       USDCNH – Strongest Yuan Fixing Since The 2005 Revaluation. USDCNH hovered around 6.4770 after the big tumble this morning. Upside momentum has waned. Barrier is now seen at 6.5400 (100DMA) with the interim at 6.4990 (21DMA) Support is seen at 6.4766 (200DMA). We continue to observe that PBOC uses the DXY index and the RMB index to guide the USDCNY. The DXY index’s decline (no thanks to JPY rally) has invoked the strongest yuan fixing since  2005 revaluation. USDCNY was fixed 365 pips lower at 6.4837 (vs. previous 6.4882). CNYMYR was fixed 2 pips higher at 0.5993 (vs. previous 0.5991). The stronger fixing has weakened the RMB index. We think there that given the primary concerns on capital outflows had ebbed and an outstanding overvaluation of its REER, PBOC would be less concern of a weaker RMB against the basket and seek to adjust the fixing in order for its REER lower in episodes that the dollar is weak. This is again, in line with our observations that the RMB index is positive correlated to the dollar. In news, Ministry of Industry and Information Technology assured that the government will reduce excessive steel capacity in the next 5 years.
*      SGDCNY Further Pullback Likely. SGDCNY inched lower from its open and closed above the 21-DMA at 4.8047.  Momentum indicators suggest further decline ahead. Support is first seen at 21-DMA at 4.7943 before 4.7513 (23.6% Fibo retracement of the Nov-Apr rally). Next support is seen at 50-DMA at 4.7389. Resistance at recent high of 4.8408.
*       1s USDINR NDF – Range-trade. 1M USDINR hovered around 66.80 this morning. Bias is still slightly to the upside with first resistance seen at 67.175 (50% Fibo retracement of the Oct-Feb rally). Daily momentum and stochastics are showing mild bullish bias but this pair has proven to be sticky around the 200-DMA at 66.70 and could remain a line of pivot in the absence of stronger market cues. Next barrier at 67.50 (100-DMA). The 50-DMA has crossed the 100-DMA from above and we could see more risks to the downside in the medium-term. Foreign investors bought U$65.9mn of equities and U$69.1mn of debt on the 27th of Apr. 
*       USDIDR – Range-Bound. USDIDR inched lower and was last seen around 13180 this morning. This pair has been in a range for a while and momentum indicators flag little bias. Foreign funds had sold off a net U$38.0mn in equities yesterday. They had however added a net U$115.2mn of debt on 26 Apr. Support is seen at 13000-handle. Resistance is at 13225 levels (23.6% Fibo retracement of the Jan-Mar downswing; 50DMA). The JISDOR was fixed higher yesterday at 13204 from Wed’s 13173.  Expect a lower fixing today given the strength in regional peers. No data of importance due this week.
*       USDPHP – Capped by the 100-DMA.  USDPHP inched higher from its open and was last seen around the 46.800-levels. Markets are likely positioning ahead of the 9 May presidential and general elections though the 100-DMA seems to be capping eager bulls for now, aided by strong JPY and weak dollar. There is increasing uncertainty regarding the economic positions of presidential candidates particularly that of the front runner Davao Mayor Rodrigo Duterte that is weighing on foreign investment decision and on the PHP as well. Daily momentum remains bullish bias and stochastics is now at overbought conditions. This suggests the potential for a retracement in the near term and could keep the pair rangy. Look for support around 46.730 (38.2% Fibo retracement of the Jan high to Mar low); 46.625 (50DMA).  Barrier is around 46.985-levels (50% Fibo). The 50-DMA has crossed the 200-DMA lower and further downside risks are possible in the medium-term. BNP Tetangco said that Apr inflation may range between 0.7% to 1.5%y/y.


*       Government bonds traded weaker despite a reasonably strong bid/cover of 2.04x seen on the 7y MGS 8/23 re-tap. Pre-auction, the bond traded to a low of 3.78% but failed to sustain the momentum after auction, ending at 3.81%. The current 10y MGS benchmark has been gradually cheapening which is a healthy move ahead of the new 10y benchmark auction slated for next month. Players look to US 1Q GDP number.
*      MYR IRS initially opened lower, but edged back up in the afternoon on some hedging flow. The 2y was reported to have traded at 3.57% and the 5y at 3.70% and 3.73%. 3M KLIBOR was the same at 3.69%.
*       With the unchanged FFR, EM rallied including the local PDS market with bids coming in tighter for AAAs and GGs. Both Oct and Nov tranches of Caga 20 tightened 4bps to 4.05% (G+55-56bps/Z+30-31bps). GGs tightened 1-2bps at the belly and long end, with Dana and MDV among those traded. AA space had some widening as MMC and TBEI widened 2-3bps at the belly and long end.


*      SGS was bullish bias tracking the surge in UST prices as FOMC left rates unchanged. Buying was seen in the 3y-5y sector despite SGD IRS moving lower on paying interest. The surprise inaction by BOJ drove USDSGD much lower in the afternoon which fueled more demand for SGS. But profit taking interest capped price rise and yields ended 3-7bps lower. Market seems segmented as the 9/24 yield of 2% is higher than the 6/25’s 1.98% yield. For now, we expect to see profit taking on the 7y issue. SGD IRS lowered by 3-5bps.
*      Asian credit market perceived the FOMC statement as dovish which resulted in a twofold effect. UST yields lowered and spreads tightened as there was a quick rush towards any decent pick up, especially in the low beta space. High beta was off 1-2bps. underperformed again, still wider by 5bps. INDON and PHILIP rose up 75cts and 50cts respectively, while PERTIJ 44 broke above $101 a level last seen around Jun 2015.
*      Indonesia bond market closed slightly lower during the day amid neutral statement post FOMC meeting yesterday. We see that the decline today was mostly due to an announcement by the MoF that 2016 budget deficit may widen to 2.4% - 2.5% of GDP. However, what bond investor have missed is the additional issuance would most probably be through global bond issuance or bilateral loan and the use of proceed would be for infrastructure spending. Hence, we continue to believe that IGS prices would continue to move higher ahead. 5-yr, 10-yr, 15-yr and 20-yr benchmark series yield stood at 7.333%, 7.584%, 7.792% and 7.779% while 2y yield shifts up to 6.998%. Trading volume at secondary market was seen heavy at government segments amounting Rp15,749 bn with FR0056 as the most tradable bond. FR0056 total trading volume amounting Rp2,622 bn with 67x transaction frequency and closed at 105.599 yielding 7.584%.
*       Corporate bond trading traded heavy amounting Rp1,044 bn. BNII01SB (Subordinated I Bank BII Year 2011; Rating: idAA+) was the top actively traded corporate bond with total trading volume amounted Rp135 bn yielding 9.894%.

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