FW: RHB FIC Credit Market Update - 1/8/14

1 August 2014

Credit Market Update

Credits Trade Cautiously; Upgrades In Chinese Oil Names

REGIONAL                      

¨      Mixed performance on Asian USD credits. The Asian credit market continued its cautious and marginally risk-off tone as investors were flooded with headline news on Russian sanctions, the Argentina default and heavy data releases from the US. JACI Composite spread closed marginally tighter by 1.2bps (236.2bps), with the IG and HY space moving -2.2bps (169.0bps) and -0.4bp (458.8bps) respectively. In the secondary space, China/HK IG USD yield movements were mixed yesterday although we believe they may tilt better following better-than-expected China manufacturing PMI this morning. Meanwhile, Thai USD bonds suffered selling pressure, such as BBLTB 18 senior and PTTGC 22 which traded a couple of bps wider. Over in Singapore, IG USD papers were, in contrary, better bid along the short- to mid-end as yields recover from their underperformance seen mid of this week. Primary movers include DBSSP 19 senior and PSASP 19 which traded tighter. On the primary front, Greenland Hong Kong (Ba1/BB+/BBB-) printed USD500m 3y bond at 4.375% yield, well inside 4.625%-4.75% guidance. Looking forward, investors are likely to stay sidelined ahead of the weekend while eyeing nonfarm payrolls release tonight.

¨      Mixed SGD demand amid fewer primary issues.  SGD swap rates yesterday rose 2-5bps across the curve following overnight UST selling amid better GDP numbers. In the secondary credit space, there was interest in short-dated papers like TACLSP 16, EZRASP 16, NCLSP 17, and GGRSP 17 among PB investors. In addition, we observed profit taking in NOLSP 20s and DBSSP Pc19.

MALAYSIA

¨      MYR credits traded softer. Yesterday we saw sideway trading of Ringgit secondary market on thin MYR342 trading volumes. Trading was done mainly on short-duration papers with preferred AAA and AA3 rated bonds. Among the top traded were Hyundai Capital 5/15 closing flat at 3.96% on MYR58m transactions; Celcom Transmission 8/19 saw MYR30m tighten by 1bp to 4.33%; and a series of BGSM ranging 12/14-12/22 on cumulative transaction of MYR33m ended the day between 3.77%-5.30%.

¨      Malaysia banking sector remains resilient. BNM released the monthly bulletin statistic yesterday, with the data shows domestic banking sector remained intact. Gross NPL slightly improved to 1.78% while loan loss coverage is still robust at 104.4%. Banking system remained strongly capitalized with total capital ratio increased to 14.8%. Loan-to-deposit ratio is healthy at 81.4%.

(MYR BN)	2013	May-14	June-14	MoM Growth	YTD Growth
Total Assets	2,059	2,101	2,125	1.2%	3.2%
Gross Loans	1,226	1,261	1,273	0.9%	3.8%
Total Deposits	1,527	1,554	1,564	0.6%	2.4%
Loan-to-Deposit Ratio	80.0%	81.0%	81.4%	0.4%	1.4%
Gross NPL Ratio	1.90%	1.80%	1.78%	-0.02%	-0.12%
Coverage Ratio	99.5%	104.9%	104.4%	-0.5%	4.9%
CET1 Ratio	12.1%	12.1%	12.2%	0.1%	0.1%
Tier-1 Ratio	13.0%	12.8%	13.0%	0.2%	0.0%
Total Capital Ratio	14.4%	14.5%	14.8%	0.3%	0.4%

TRADE IDEA: MYR

Bond	ADCB 11/17 (AAA RAM) (price: 102.55; yield: 4.51%; MGS+c.104bps)
Comparable(s)	ADCB 5/17 (AAA RAM) (price: 99.48; yield: 4.50%; MGS+c.106bps) UMWH 6/17 (AAA RAM) (price: 99.67bps; yield: 4.02%; MGS+c.58bps)
Relative Value	We reiterate our overweight view on ADCB 11/17 which offers c.60bps pick up relative to the BNM indicative yield curve (BNM 3y: 3.91%). Despite having tightened 9bps (from 4.60%) since our last call on 21-Jul, we opine that the paper remains attractive with ample room to narrow relative to the AAA space. In comparison with local names like UMWH 6/17, ADCB 11/17 is trading at a whopping 49bps wide, which is undervalued in our opinion given its strong fundamentals
Fundamentals	1.     ADCB’s MYR3.5bn MTN programme is guaranteed by its parent, Abu Dhabi Commercial Bank PJSC (ADCB). ADCB, the third largest bank in UAE by assets, is majority-owned by the Abu Dhabi government and deemed to be systemically important to the UAE. 2.     ADCB is rated at A1/A/A+ by Moody’s, S&P and Fitch, 1-2 notches higher than the Malaysian sovereign ratings of A3/A-/A-.

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	Impact
IJM	Construction	MY	FYE14 net profit increased by 91% yoy to MYR1.08bn supported by the strong performance of its property and infrastructure division. Debt profile remained comfortable as gearing stood at 0.63x and debt-to-EBITDA at 3.1x.	Positive. We continue to like IJM on the back of its good track record, diversified business profiles with recurring income bases. Stable incomes from plantation and infrastructure division contributed c. 21% to the Group’s PBT. Debt-to-EBITDA has also inched lower YoY.