FW: RHB FIC Credit Market Update - 5/6/14

5 June 2014

Credit Market Update

USD Continue Losses on Better ISM Data; SGD Credits Ended on Softer Tone; MYR Interest on BGSM

REGIONAL                      

¨   APAC credit yields narrowed; USTs continued losses on better ISM data: The JACI Composite saw spread compression to close at (-3.8bps) 243.4bps with similar spread movements in IG at 171.8bps (-3.6bps) and HY at 481.3 (-4.8bps). The iTraxx AxJ saw marginal widening by 0.3bps, indicating a slight increase in investor risk sentiment. In the China IG space, we saw better buying among oil benchmarks like CNOOC and SINOPE while mid-to-long BIDU papers saw tightening by c.2-6bps amid printing of the new BIDU 6/19 c.25bps inside initial guidance. In HK, we saw yield narrowing among property players such as SWIRE, SUNHUN and HKLSP by c.1-4bps. Singapore saw selling activity among long-dated Temase papers which widened by c.4bps. USTs extended losses for the fifth day in a row as the ISM non-manufacturing index rose more than forecast (act: 56.3; exp: 55.5). The 10y UST benchmark rose marginally by 0.36bps to close at 2.60%.

¨   Baidu printed its USD 5y (exp rating: A3/NR/A) at final price of T+125bps, inside initial guidance of T+150bps. China Merchants Bank is printing a REG S USD 3y (exp rating: Baa1/BBB+/NR) at initial guidance of T+190bps. Khazanah is also marketing up to USD750m 5y exchangeable sukuk, with an option to swap the sukuk to Tenaga Nasional Berhad shares for around 10%-20% premium over reference price. 

    

¨   SGD markets ended on softer tone; duration shortening observed. Yesterday’s SGD swap curve saw an uptick of 1-3bps aligning with overnight upward shift in the UST curve, which saw its 10Y yield rising almost 6bps to c.2.60%. Meanwhile, investors took to profit taking at the longer-end of the curve, with TEMAS ’29 and TEMASE ’25 declining most by 0.52pp (+4.2bps) and -0.49pp (+5.1bps), respectively, as well as  ANZ ’25 continuing its descent by -0.46pp (+5.8bps) to 4.83%. In contrast, ASIA ’18 led gains by climbing 1.20pp (-27.8) to 100.19 (0.98%); followed by WHEELK ’21, advancing 0.38pp (-5.9bps); and SNSSNS ’27, increasing 0.35pp (-4bps). On the new issue front, KRISSP ’17 saw demand while ASPSP ’19 trading rangebound. Also, SMRT Corporation Limited (-; AAA/Neg; -) printed a 10Y 3.072% SGD100m paper priced at SOR+50bps.

MALAYSIA

¨   BGSM fueled secondary trades. Wednesday’s corporate volumes increased by 7.5% to MYR519m with interest seen in short-mid term durations. As mentioned, BGSM was the top traded name with combined transactions volume of MYR252m (49% of daily activities). The highest traded tranche was BGSM 12/15 on MYR212m activities with yield widen by 6bps since 9-Apr to 4.28%. Other notable names were government-guaranteed GOVCO 2/21 with yield realigned by 61bps (since 21-Sept-2012) closed at 4.38% on a MYR50m transactions; Sabah Development 5/16 broaden by 4bps (since 23-May) to 4.37%; and Cagamas 10/25 ended at 4.72% (+2bps since 12-May) on MYR20m volumes.

TRADE IDEA: MYR

Bond	AmBank (M) Berhad (AMBANK) AMBANK 12/23c18 B3 T2 (RAM: AA3) (price: 100.76; ytc: 5.00%; MGS5Y+126bps).
Comparable(s)	AMBANK 4/23c18 old-style T2 (RAM: AA3) (MTM price: 105.98; ytc: 4.54%; MGS4Y+88bps).
Relative Value	Switch from AMBANK 4/23c18 to AMBANK 12/23c18 to 1) take out 5.22 price points; and 2) pick up 46bps and 38bps in terms of yield and spread over MGS respectively; 3) extracting a favourable PONV premium of c.25bps; while 4) staying within the same issuer; and 5) only moving into a slightly smaller size of MYR400m (from MYR600m) and increasing tenure by 8.7 months. AMBANK 12/23c18 is currently the highest yielding new-style paper in the market with a favourable PONV premium of 25bps against AMBANK 4/23c18 after adjusting for higher non-call risk (minus 15bps) and tenor difference (0.83bps/month).
Fundamentals	AMBANK’s parent, AMMB Holdings Bhd, recently posted improved FY14 (March 31) revenue and earnings, healthy asset quality and capitalization. Revenue and net profit increased by 10.3% and 12.5% YoY to MYR9.61bn and MYR1.87bn, respectively, for the group’s financial year ended 31 March 2014. The improvements were supported by stronger growth in retail and insurance business as well as better cost control. In the same span, net loans grew 5.6% YoY to MYR87.2bn while asset quality remains healthy, reflected by a gross NPL ratio of 1.86% (down from 1.98% a year earlier) with loan loss coverage standing at 127.4%. Finally, the group’s capitalization ratios appeared healthy as well, with CET1 at 10.1%, Tier-1 at 11.6% and total capital at 15.9%.