Newcrest: The group all-in-sustaining cost (AISC) for the June quarter at US$902/oz, up 26.5% q/q, was driven by higher AISC at Cadia (seismic event), Gosowong and Bonikro, offseting lower AISC at Lihir and Telfer. Newcrest recorded full-year AISC for FY2017 at US$787/oz, up 3.3% y/y while realized gold price was also up by 8.3% y/y at US$1263/oz. Newcrest recently announced Cadia remediation work has been completed at Panel Cave 2 and ore extraction is in testing phase, while operations at Panel Cave 1 are likely to restart in the September quarter. We believe this is a positive development and the recent weakness in the hike in AISC and slowdown in gold production will not trigger a credit downgrade as production should normalize soon. Newcrest 4.2% 2022 and Newcrest 5.75% 2041 remain attractive compared to USD BBB - materials group and its closest peer Barrick.
HSBC: HSBC reported a 3% growth in adjusted revenue mainly due to better insurance performance and better client flows in bonds. However, net interest margin was still weak at 1.64% compared to 1.83% in 1H 2016 due to increased cost of funds. Adjusted operating expenses were also 3% higher mainly due to 4% higher costs in retail banking. Loan loss provisions were 72% down at US$663mil or around 18 bps of loans annualised which is possibly the best on record due to improvements on the oil and gas and metals and mining sectors. Further, capital build remains strong, with CET1 jumping another 40 bps to 14.7%, from 14.3% in 1Q and 13.6% in 2016. In terms of valuation, spreads have been compressing to low-300 levels but are still about 20 bps above the low seen in 2014. Given the huge improvement in capital ratios and current corporate credit spread compression, these bonds still look attractive. We prefer HSBC 6.375% 2025 (USD) and HSBC 6% 2023 (EUR) taking into account spreads and reset rates.
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