FW: RHB FIC Credit Market Update - 31/7/14

31 July 2014

Credit Market Update

Credits Traded Softer; Dovish Fed Despite Positive 2Q GDP

REGIONAL                      

¨      Asian USD credits traded softer; dovish Fed despite improving GDP and job data. We saw better selling yesterday in Asian USD credits yesterday as most papers saw rising yields in general. New Huarong 19 eased wider, reversing its outperformance last week. Other traded papers include POLYRE 19, UOBSP 17 and OCBCSP 15 seniors which ended a couple of bps wider. Meanwhile, JACI Composite spread ended 2.5bps tighter (234.1bps), with the IG and HY space tightening 2.7bps (167.8bps) and 1.9bps (456.0bps) respectively, partly due to a spike in UST yields. The surprise upside in US 2Q14 GDP release yesterday was overshadowed by dovish Fed which assured that US rates would remain near zero for a considerable time, while acknowledging the improvements in the labour market. US Treasury yields added +8bps to +10bps along the mid- to long-end. Looking ahead, we expect credits to struggle for direction today as investors digest heavy headline news (including US and European Union sanctions against Russia) while eyeing upcoming data releases. Important data releases include initial jobless claims (tonight), nonfarm payrolls, unemployment and manufacturing figures (Friday), which are likely to be broadly mixed with a tilt towards continued economic recovery.

¨      SGD credits to see cautious moves; CapitaMall priced 10y at 3.48%. SGD swap curve inched higher at the short-end (+2bps) while the mid- to long-end moved sideways as investors awaited cues from US Fed. We expect SGD bonds to move cautiously today, tilting towards higher yields following a volatile overnight session post-dovish FOMC. On the primary front, CapitaMall Trust has priced SGD300m 10y at 3.48%

MALAYSIA

¨      Financial names led activities in MYR space. Secondary markets saw good flows of MYR561m yesterday, fueled by financial names (42% of total volumes). Investors were also seen to focus on short-duration papers. HLB oldstyle T2 5/21c16 edged 3bps up to 4.23% (Since 22-Jul) on MYR80m transactions while ADCB 11/17 saw MYR45m done at 4.51% (+1bp since 23-Jul). Other notable papers were MYR60m trades of Putrajaya 7/16 realigned 24bps higher to 3.83% (since 12-Oct-2012).

TRADE IDEA: MYR

Bond	Ezion Holdings Ltd, EZISP 21c18 (ytm: 4.73%; SOR+326bps) (NR)
Comparable(s)	EZISP 5/19 (ytm: c.4.40%; SOR+c.265bps) (NR) EZISP 3/20 (ytm: c.4.78%; SOR+c.280bps) (NR)
Relative Value	We reiterate our preference for EZISP 21c18 (last made in our Credit Market Update dated 28-May) which seems attractive within Ezion complex. We prefer EZISP 21c18 for duration play with high likelihood of call, based on its generous 200bps step-up at the first call date. Hence we view that this paper should be treated as a 4 year piece.
Fundamentals	We continue to like EZISP due to: 1.     Strong orderbook. Ezion chalked up a strong order book of USD290m in 1Q2014 comprising of four global charter contracts. 2.     Healthy fundamentals with profitability. Compared to its peers in the Singapore offshore support vessel (OSV) space, Ezion exhibits healthy fundamentals and financial profile with LTM EBITDA margin at 38% (OSV peers: 9.3%), LTM Debt/EBITDA at 7.0x (OSV peers: 8.7x) and EBITDA/ Interest Expense at 10.4x (OSV peers: 3.2x).  3.     Demand for oil and gas support services to stay robust.  We expect oil prices to stay strong this year at c.USD100-110/bbl, hence we expect that growth in oil exploration and production expenditure should continue unabated. We opine that growth will be in question if oil prices hit closer to USD80/bbl. On the surface the OSV sector seems oversupplied (OSV/rig ratio: 4.5x), in comparison to the global equilibrium ratio of 3.8-4.0x. However, if we exclude the existing aged vessels (>25 years old), the ratio drops to 3.3x, which indicates a situation of undersupply instead.

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	Impact
AMMB Holdings Bhd	Banks	MY	FYE14 net profit increased by 12.5% yoy to MYR1.87bn on the back of strong growth in retail banking (+9% yoy) and insurance business (+89% yoy) as well as improved cost-to-income to 45.5% (FYE13: 47.8%). Asset quality improved with gross impaired loans reduced to 1.86% (FYE13: 1.98%). Capitalization remained strong with tier-1 and total capital stood at 11.2% and 15.5% respectively (FYE13: 11.1%, 14.8%). Moderate loan and deposit growth of 5.6% yoy (FYE13: 9.1%, 9.8%). Intense competition caused net interest margin dropped to 2.68% (FYE13: 2.72%). Funding and liquidity remained tight with LDR is high at 97.2% (FYE13: 97.4%).	Neutral. The Group has good loss absorption capability supported by its robust capitalization and good asset quality in addition to perceived support from its strategic shareholders ANZ Banking Group.
Sentoria Group Bhd	Property	MY	Printed MYR120m, 3-7yrs, 4.65%-5.30%, AAA (BG by Bank Pembangunan).	Negative. The company is planning to gear up for its ambitious expansion plan to develop integrated resorts in Pahang, Selangor and Sarawak. This could weaken its debt repayment profiles in the interim period. Sentoria’s debt-to-equity is estimated to increase to 0.82x post-issuance.
SP Power Assets	Power	SG	Moody’s upgraded SP Power from Aa3/Pos to Aa2/Sta driven by its sizable debt reduction (from divestment proceeds of SP Power’s Australian assets)	Positive. In addition to its healthy financial profile, we continue to overweight SP Power due to its monopoly of the transmission and distribution of electricity in Singapore, transparent and market-driven pricing system and strong-likelihood of government support due to Temasek’s full ownership in SP Power (via Singapore Power Ltd).

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