Friday, March 17, 2017

USD/FX consolidated overnight, with most USD/Asia FX still near recent lows. GBP was the outlier, jumping abov





Global Markets Daily
by Saktiandi Supaat


FX Research





USD/FX consolidated overnight, with most USD/Asia FX still near recent lows. GBP was the outlier, jumping above 1.23-handle on BoE surprise. EUR was supported after Netherlands General Election saw no negative surprise (incumbent PM Rutte secured 33 seats while Far Right party leader lost momentum with only 20 seats). Commodity prices including gold, base metals, and iron ore remain well supported. Day ahead, we expect USD to remain broadly softer. EM higher yielders such as IDR, INR could..

¨ AxJ Markets: Singapore’s NODX surged by 21.5% y-o-y (Jan: 8.6%), with expansion of NODX

17 March 2017


Rates & FX Market Update


BoE Dissent Vote Fueled Gains on GBP Ahead of Article 50 Trigger

Highlights

¨   Global Markets: While US economic data releases were mixed yesterday, FFR futures indicated that probability for FFR hike in June increased from 50.2% to 53.5%, prompting a retracement on UST yields, with the 10y climbing back to 2.54% (+5bps). Keep a neutral duration stance on USTs over the coming weeks while Congress debates on US President Trump’s federal budget, with steep cuts to domestic departments likely to be challenged in Congress.
¨   AxJ Markets: Singapore’s NODX surged by 21.5% y-o-y (Jan: 8.6%), with expansion of NODX largely led by China, South Korea, and Taiwan. While the improving external demand is likely to diminish MAS easing prospects in 2017, we prefer to keep our mildly bearish stance on SGD as strong dependence on Chinese demand fuels susceptibility to external gyrations; yields on SGS recorded gains, mirroring post FOMC gains on USTs where we opine for the close correlation between SGS and USTs movements to be sustained over the near term. PBoC raised the 7-day, 14-day, and 28-day reverse repo rates by 10bps to 2.45%, 2.60%, and 2.75% yesterday, in tandem with FFR 25bps rate hike. Separately, PBoC has also raised the 6-month and 1-year MLF rates by 10bps to 3.05% and 3.20%, its second increase in 6 weeks, demonstrating its commitment towards mitigating excessive credit growth as economic growth stabilises. While yields on CGBs remained largely stable yesterday, downward pressure was evident on the USDCNY pair which traded past the 6.90 support. We continue to position for a mildly bearish CNY, with expectations for a 3-4% depreciation against USD this year, but expect higher two-way volatility on the USDCNY pair over the coming year.
¨   BoE’s decision to hold the Bank Rate at 0.25% was not unanimous, with outgoing BoE member Forbes voting to increase the Bank Rate by 25bps given declining tolerance for CPI to materially overshoot its 2% target (Jan: 1.8%). The hawkish surprise supported strength on GBP overnight to 1.2358/USD (+0.55%), even as the overhang of the imminent Article 50 trigger at the end of the month continued to exert bearish pressure on GBP. While GBPUSD could seek to test its 1.21 support as formal Brexit negotiation materialises over the coming weeks, declining propensity for a dovish BoE should limit extreme downward pressure on GBP over the medium term.

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¨ UST bear steepened, erasing Fed-fueled gains on Wednesday amid steeper decline in UK

17 March 2017


Credit Markets Update
                                               
TBE Issued MYR800m Perp for Refinancing
MYR Credit Market:
¨      Govvies rallied on less hawkish Fed. MGS curve bull-flattened as yields declined across the curve with the 3y falling 2bps to 3.42% while 10y slipped 7bps to 4.08%. MGS 9/17 remained highly traded with a volume of MYR1.5bn, ending the day lower at 3.33% (-6bps from the last traded the previous day). The GII sphere stayed muted with merely MYR243m exchanging hands throughout the day. The MYR strengthened 0.24% to 4.438/USD amid the weakening of the greenback.
¨      Quasi government bonds dominated corporate activities. Volume totalled MYR818m yesterday. Yields for short-tenure quasi government bonds generally inched higher – Cagamas ’17-18 settled at 3.70-3.97% (-1bp to 9bps) on combined MYR185m trades, PASB 6/17 rose 5bps to 3.49%, while Khazanah 3/20 increased 2bps to 4.06%. New issuance AMMB Hldg T2 3/27c22 transacted at 5.00%, 20bps below the coupon. Affin Bank T2 2/27c22, which was issued last month, also closed firmer at 5.245% (c.21bps below coupon).
¨      Tanjung Bin Energy Sdn Bhd (TBE) issued non-rated MYR800m Pnc7. The perpetual unrated Sukuk is backed by an unconditional and irrevocable subordinated cash deficiency support from the Obligor, Malakoff Corp. The proceeds from the issuance are earmarked for partial redemption of MYR1.29bn Junior Term Loan.
APAC USD Credit Market:
¨      UST bear steepened, erasing Fed-fueled gains on Wednesday amid steeper decline in UK bonds as the Bank of England released a somewhat hawkish statement, despite maintaining status quo on interest rate. 2y USTs yield edged up to 1.33% (+3.3bps), while 10y bond rose by 4.7bps to 2.54%. The US economic data released yesterday showed housing starts data moved to a four-month high in February (actual: 1288k, consensus: 1264k), as a result of tighter job market and improved finances. Initial jobless claims data was slightly higher than expectation (actual: 241k, consensus: 240k). The DXY index was down by 0.38% to 100.36. Looking ahead, industrial production and University of Michigan sentiment data will be released later tonight.
¨      Over in Asia, iTraxx AxJ IG index fell by 3.5bps to 89.8bps, with lower CDS spreads seen in Bank of China Ltd, Reliance Industries Ltd and PETMK. PETMK’s CDS spreads were largely unaffected by the modest decline in its FY16 earnings amid lower crude oil prices. The IG space was a tad wider at 171.8bps (+0.2bps); the HY credit spreads lost 6.2bps to 6.57%.
¨      In primaries, APA Pipelines Ltd (issue rating: NR) priced USD850m long 10y at T+185bp, against its IPT at T+200bp area. Elsewhere, Fortune Star (BVI) Ltd. (issue rating: NR/BB/NR, guarantor: Fosun International Ltd) sold USD800m 5NC3 bond at 5.25%, compared to its IPT at 5.5% area. Scentre Mgmt Ltd (issue rating: A1/NR/NR) issued USD500m 10y bond at T+130bp, against its IPT at T+150bp area.
¨      Moody’s revised Beijing Enterprises Holdings Ltd’s (BEH) outlook from negative to stable in order to reflect that the company’s parent Beijing Enterprises Group Co. Ltd (BEG) will maintain its credit profile and Moody’s expectation that BEH’s financial performance to improve over the next 12-24 months.

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YTL Power: Poised to start USD2.1b power project in Jordan. YTL Power International’s unit, Attarat Power Co’s (APCO) USD2.1b (MYR9.3b) oil shale power project in Jordan has reached financial close for the project to construct the first oil shale-fired power station and open cas






Top Glove | Improved demand-supply
Yen Ling Lee







Berjaya Sports Toto | 3QFY4/17: A forgettable quarter
Samuel Yin Shao Yang









break





Malaysia | The FBMKLCI’s rocket
Tee Sze Chiah








break


COMPANY RESEARCH





Results Review





Top Glove (TOPG MK)
by Yen Ling Lee





Share Price:
MYR5.20
Target Price:
MYR6.20
Recommendation:
Buy




Improved demand-supply

Despite the spike in key input costs, 2QFY8/17 was sequentially stronger but within expectations. We think Top Glove’s near-term earnings could remain strong as its latest ASPs have already reflected the high input prices. Demand-supply dynamic has also improved as the industry’s expansion is relatively slower. Maintain our EPS forecasts, BUY and TP of MYR6.20 (20x 2018 PER; +1SD to mean). Key catalysts will be the falling latex price and strong USD/MYR. Foreign shareholding is at record low.



FYE Aug (MYR m)
FY15A
FY16A
FY17E
FY18E
Revenue
2,510.5
2,888.5
3,360.6
3,657.9
EBITDA
454.3
523.3
507.8
573.7
Core net profit
279.8
361.1
325.9
375.7
Core EPS (sen)
22.6
29.1
26.3
30.3
Core EPS growth (%)
55.0
29.0
(9.7)
15.3
Net DPS (sen)
11.5
14.5
13.1
15.1
Core P/E (x)
23.1
17.9
19.8
17.2
P/BV (x)
4.0
3.5
3.3
3.0
Net dividend yield (%)
2.2
2.8
2.5
2.9
ROAE (%)
89.9
76.9
51.9
59.9
ROAA (%)
12.1
13.5
11.8
12.6
EV/EBITDA (x)
10.1
9.5
12.1
10.5
Net debt/equity (%)
net cash
net cash
net cash
net cash










Results Review





Berjaya Sports Toto (BST MK)
by Samuel Yin Shao Yang





Share Price:
MYR2.98
Target Price:
MYR3.05
Recommendation:
Hold




3QFY4/17: A forgettable quarter

Earnings and dividends disappointed due to higher-than-expected prize payout ratio and a one-off GST adjustment. We cut our FY17 EPS by 14% to reflect the aforementioned but trim our FY18 and FY19 EPS estimates by only 3% and 2% as we expect the prize payout ratio to normalize and the GST adjustment not to recur. Consequently, we trim our SOP-based TP by 3% to MYR3.05. We hope the amended Common Gaming Houses Act 1953 will be passed as this will enable BST to regain market share.



FYE Apr (MYR m)
FY15A
FY16A
FY17E
FY18E
Revenue
5,283.6
5,563.2
5,495.3
5,571.4
EBITDA
558.6
496.4
465.5
522.2
Core net profit
343.5
308.6
272.0
316.2
Core EPS (sen)
25.5
22.9
20.2
23.5
Core EPS growth (%)
(0.6)
(10.3)
(11.8)
16.3
Net DPS (sen)
21.5
19.0
16.5
19.3
Core P/E (x)
11.7
13.0
14.8
12.7
P/BV (x)
5.9
5.2
4.9
4.6
Net dividend yield (%)
7.2
6.4
5.5
6.5
ROAE (%)
55.1
42.5
34.4
37.4
ROAA (%)
15.6
12.6
10.5
12.8
EV/EBITDA (x)
8.4
9.0
9.3
8.2
Net debt/equity (%)
35.0
35.4
26.3
17.7


Samuel Yin Shao Yang






MACRO RESEARCH






The FBMKLCI’s rocket
by Tee Sze Chiah


Technical Research





FBMKLCI skyrocketed yesterday, rising 19.78pts to close the day at 1,737.14, a new high since Aug 2015. Market breadth was equally jovial with gainers outpaced losers by 666 to 286. A total of 3.39b shares worth MYR3.58b changed hands yesterday. FBMKLCI edged higher and broke its previous high of 1,734 on foreign buying. Despite the overwhelming positive sentiment, we expect some consolidation today as market digests its recent gain ahead of the weekend break.







NEWS


Outside Malaysia:

E.U: Car-sales growth cooled in February as political uncertainty clouds the area’s economic outlook and the market becomes increasingly saturated after three years of expansion. After a 10% jump in January, industrywide registrations rose 2.1% to 1.1 million vehicles last month, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said. (Source: Bloomberg)

U.K: Brexit fight with Scotland escalates as May rejects vote. Prime Minister Theresa May rejected Scotland’s bid to hold a referendum on independence before the U.K. leaves the European Union, the latest twist in the increasingly acrimonious fight over Brexit with the nationalist government in Edinburgh. While not ruling one out eventually, May’s team said they would not even discuss a new referendum at a time when the focus was on getting the best Brexit deal for the whole U.K. Scottish First Minister Nicola Sturgeon demanded the power to call a plebiscite by spring 2019 on whether Scotland, which voted to remain in the EU, should break away. (Source: Bloomberg)

China: Central bank raised borrowing costs as a stable economy and factory reflation give it scope to follow the Federal Reserve in tightening policy. Hours after the Fed’s quarter percentage-point move, the People’s Bank of China increased the rates it charges in open-market operations and on its medium-term lending facility. The central bank said markets expected higher borrowing costs and that open-market rate increases don’t necessarily equate to interest-rate hikes, according to a statement. The cost of seven-, 14- and 28-day reverse-repurchase agreements was raised 10 basis points each. That followed an increase in early February (Source: Bloomberg)

Crude oil: Saudi Arabia says oil-supply cuts may be extended if necessary. OPEC and its allies may prolong production cuts after they expire in June if the world’s crude inventories remain excessive, Saudi Arabia’s Energy Minister said. The curbs will be sustained if stockpiles are “still above the five-year average, if the markets are still not confident in the outlook, if we don’t see companies and investors feel good about the health of the global oil industry,” Khalid Al-Falih said in a Bloomberg television interview in Washington. “We want to signal to them that we’re going to do what it takes to bring the industry back to a healthy situation.” (Source: Bloomberg)





Other News:

YTL Power: Poised to start USD2.1b power project in Jordan. YTL Power International’s unit, Attarat Power Co’s (APCO) USD2.1b (MYR9.3b) oil shale power project in Jordan has reached financial close for the project to construct the first oil shale-fired power station and open cast mine in Jordan. The building of the 554 MW gross/470 MW net oil shale-fired mine mouth power station will start shortly and the power station was scheduled to start operation in mid-2020. The shareholders had committed to provide base shareholder funding of up to USD528m (MYR2.3b). (Source: The Star)

Mudajaya: Signs 21-year PPA with TNB to build solar plant in Perak. Its indirect wholly-owned unit Sinar Kamiri S/B has signed a 21-year PPA with TNB. The agreement will allow it to build a large-scale photovoltaic plant in Sungai Siput, Perak, that has a capacity of 49MW, on a build-own operate basis. The PPA, which has an expected commercial operation date of Aug 31, 2018, governs the sale and purchase obligations of the energy generated by the project between Sinar Kamiri and TNB for a period of 21 years from the commercial operation date in accordance with the agreed terms and conditions. (Source: The Edge Financial Daily)

AirAsia: Revived plan to acquire business jet, eyes charter ops. AirAsia is making a second attempt to acquire a 20-year-old aircraft from Caterham Jet Global Ltd (CJG) for USD10m (MYR44.3m) cash, with a plan to operate charter and private unscheduled business jet operations. It had entered into a SPA with CJG for the acquisition of Bombardier BD-700-1A10 Global Express. This is deemed a related party transaction as AirAsia executive chairman Tan Sri Tony Fernandes are the sole shareholders of CJG, via their private vehicle Tune Group S/B. (Source: The Edge Financial Daily)


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