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

8 August 2014

Credit Market Update

APAC Spreads Widen as USTs Gain on Ukraine; HLBB 6/24c19 B3 T2 Appears Pricey

REGIONAL                      

¨      APAC credits spreads widened as USTs gain on Ukraine. The JACI Composite widened by 3.1bps (to 248.1bps) led by the HY which a similar movement of 4bps (to 476.2bps) and IG with 2.9bps (to 179.5bps) as UST yields narrowed across the board. The 10y and 30y UST yields tightened to 2.41% (-5.9bps) and 3.22% (4.6bps) on Thurs, the lowest levels so far this year amid continued geopolitical instability in Ukraine as the standoff worsens between Russia and the US (with its allies). In China/HK, we observed broad yield narrowing with better buying across long-dated CNOOC and HUWHY papers. The Singapore USD market concomitantly saw general yields moving southward led by interest on long-dated TEMASE, STSP and SPSP.

¨      SGD swap rates rose across broad durations with the long-end suffering higher upward yield pressure (+1 to +6bps). Meanwhile, the 3/5y spread ended marginally wider at 62.6bps (+0.6bp). In the credit space, we continued to see interest in the short-end up to the belly of the curve, such as SWIBSP 16 and CAPITA 14.

MALAYSIA

¨      Good performance by MYR corporates. We saw another day of strong MYR market with above average trading volumes of MYR785m. Heavy interest seen in GRE and banking names. Government-guaranteed Prasarana and DanaInfra were active yesterday with combined transactions of MYR233m or 30% of total activities. Among the top gainers were Maybank 8/21 edged 10.7bps lower to close at 4.157% with MYR100m volumes; Telekom 4/23 saw MYR70m done at 4.508% (-6.1bps); and Kimanis 8/24 with MYR40m trades closed 32bps tighter at 4.899%. Overall, corporate space reported gain yesterday.

TRADE IDEA: MYR

Bond	Hong Leong Bank (HLB) B3T2 6/24c19 (RAM: AA2) (Last Traded: 07-Aug-14; Price: 101.20; Yield: 4.522%; 5y-MGS+c.85bps)
Comparable(s)	Hong Leong Islamic Bank (HLIBB) B3T2 6/24c19 (RAM: AA2) (Last Traded: 06-Aug-14; Price: 100.44; Yield: 4.694%; 5y-MGS+c.103bps) Maybank Islamic Bank (MIBB) B3T2 4/24c19 (RAM: AA1) (Last Traded: 06-Aug-14; Price: 100.46; Yield: 4.638%; 5y-MGS+c.97bps) Public Islamic Bank (PIBB) B3T2 6/24c19 (RAM: AA1) (Last Traded: 04-Aug-14; Price: 100.48; Yield: 4.637%; 5y-MGS+c.97bps)
Relative Value	We view HLBB 6/24c19 to be fairly pricey at its current level, relative to other comparable B3T2 bonds and hence investors with existing exposure could consider to take profit and switch to any of the Sukuk subdebt as they are 18-22bps cheaper after adjusting for duration and rating differentials by 10bps.
Fundamentals	Both Public Bank and Maybank are larger than HLB, demonstrating their strategically importance and dominance position in the country. All 3 banks are adequately capitalized and have good asset quality while HLB registered the lowest NIM and total capital compare to the other 2. Domesic Bank peers: OCBC, DBS

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	Impact
Ezion Holdings	Offshore-support vessel	SG	Ezion announced its 2Q014 results with Revenue climbed +37.8% YoY to (USD92.6m) and NP +25.5% (USD45.5m).	Positive. We continue to like Ezion on its strong performance, winning seven contracts this year (order book was c.USD2bn as of Jan-2014) and strong fundamentals compared to its peers with Debt/ EBITDA at 6.7x (SG OSV peers: 8.7x) and LTM Interest Coverage at 11.8x (SG OSV peers: 3.2x). We opine that Ezion’s cash flows are expected to be stable as it has secured contracts that will stretch until 2022.
Plantation - Malaysia	Plantation	MY	The implementation of B5 biodiesel mandate across the nation has been delayed to end of the year from July-14 due to construction delay of 15 blending facilities in East Malaysia.	Neutral. We opine that the primary drivers of the CPO price and demand remain export-based. The delay may have a brief negative effect on sentiment, but we expect CPO price to see upward pressure in the coming months on: i) rising demand - record high local usage (284.1k tonnes) and growth of 5.3% in palm oil June exports; ii) lower inventory – June’s stockpile declined to 1.657m tonnes, returning to Feb’s low levels as high exports wiped out stocks. We expect the CPO price to average MYR2,600- MYR2,700/MT in 2014, vs current YTD average CPO price of MYR2,590/MT.