PRUDENTIAL PLC (PRUDENTIAL): Prudential released 1Q2017 performance highlight with new business profits of £856 million - grew by 25% y/y on local currencies and 42% y/y on actual exchange rate. 1Q2017 group Solvency II surplus remain stable at £12.4 billion, equivalent to a cover ratio of 198% reflecting the strength of its capital position. To recap in the Credit Watch dated 20 March 2017, we highlighted Prudential bonds are trading at an attractive level and since then, both Prudential 5% 2055NC2035 (GBP) and Prudential 5.25% Perp (USD) bonds has outperformed market rallying by 6pts and 3pts respectively; z-spread has tightened by 37bps and 20bps respectively. We continue to like Prudential’s diversified geographic footprint and strong balance sheet that remain defensively positioned across cycles. We believe the current valuation is still appealing compared to its peers, and we prefer Prudential 5.25% Perp (USD).
PERTAMINA PERSERO PT (PERTAMINA): Within expectation, S&P's has finally revised Indonesia sovereign rating from BB+ (Positive) to BBB- (Stable) reflecting reduced risks to Indonesia’s fiscal metrics and the government’s focus on realistic budgeting. Concurrently, Pertamina was also upgraded one notch to BBB- (Stable) being part of Indonesia quasi-sovereigns USD bonds. Market digested the rating upgrade news positively with Pertamina’s bond spread tightening 3-5 bps. Currently, the z-spread of Pertamina 6.45% 2044 and 6.5% 2041 are trading at an almost all-time low of 70bps and 77bps against Indonesia USD sovereign bonds, well below its historical average of 100bps and 106bps respectively. We believe investors could take profit on Pertamina bonds as the valuation are relatively tight compared to Indonesia USD sovereign bonds.