FW: RHB FIC Credit Market Update - 18/2/15

18 February 2015

Credit Market Update

CDS Spreads Up Amid Light Flows; Value in BLand MYR Complex

REGIONAL

¨      Credit protection costs widened as iTraxx AxJ closed 1bp higher to 105bps. NOBLSP 18-20 extended losses yesterday, but the company stood up to deny Iceberg allegations in an after-market statement yesterday. The Asian credit space generally saw yields heading north amid quiet markets. Papers traded include CNPCCH 17, TELMAL 25 and KTB 18 which widened a couple of bps. Today is the last trading day of week for Singapore, Hong Kong and Malaysia while China markets are already closed. UST yields rose 2-9bps before the FOMC minutes release tonight and Janet Yellen’s testimony before Congress next week, which may be slightly hawkish following surprisingly strong employment data in January.

¨      Quieter trading before CNY; Continued decline in China home prices. The short-to-mid SOR curve rose between 3.5-4bps to close at 1.57% (3y) and 1.95% (5y). Markets traded quieter yesterday, and are expected to continue to tread softly today ahead of Chinese New Year celebrations tomorrow. We still saw some interest on real-estate related papers such as FCLSP and CITSP. Average China home prices in the 70 major cities fell 0.4% MoM in January (or -5.1% YoY), the ninth consecutive decline. This is despite recent monetary and property regulation easing in China. We opine that this will lead to further headwinds against the China property market, which has been slowly recovering from the sell-off in January stemming from concerns over the Kaisa technical default.

MALAYSIA

¨      Ringgit bond gained +0.06% on lackluster activities, in the absence of fresh drivers. PDS volume rose slightly to MYR320m on Tuesday, led by Unitapah 6/32 and 12/32 of MYR45m each closed at 6.136% and 6.186% respectively. Telekom complex were seen done with the 23s and 6/24 reportedly transacted at 4.50% and 4.585%. Elsewhere, student loan provider - PTPTN complex was pretty active with total reported trade of MYR50m on its 3/24 and 8/26, dealing at 4.408% and 4.501%, respectively. Onto govvies, total of MYR2.798bn was done, with MGS 2/15 appears the most active, closing at 3.222% (-5bps, MYR961m transaction), followed by MGS 10/19 at 3.759% (-5bps, MYR523m) and MGS 10/17 at 3.462% (+ MYR0.02 to MYR99.62, MYR486m). Meanwhile, GII 5/24 closed unchanged at 4.105% on MYR252m traded.

TRADE IDEA: MYR

Bond(s)

BLand 12/19 (AAA-FG) (Last trade: 27-Jan; Price: 100.7; Yield: 4.78%; 5y-MGS+ c.112bps) (Amt O/S: MYR200m)

Comparable(s)

BLand 12/17 (AAA-FG) (Last trade: 30-Jan; Price: 100.7; Yield: 4.39%; 3y-MGS+ c.102bps) (Amt O/S: MYR200m) Aquasar 7/20 (AAA) (Last trade: 20-Jan; Price: 100.9; Yield: 4.44%; 5y-MGS+ c.78bps) (Amt O/S: MYR100m)

Relative Value

We see value in the BLand complex, with an addition of its 12/19 to our list following our recommendations on BLand 12/17 and 12/21 in RHBFIC Credit Market Update on 10-Feb and 20-Jan respectively. At 4.78%, BLand 12/19 provides an attractive pick-up value of c.45bps relative to our proprietary AAA curve. In addition, it is traded at 34bps wider than similarly-rated Aquasar 7/20 and the larger issuance size of BLand 12/19 (MYR200m) may provide higher liquidity in the secondary market.

Fundamentals

BLand 12/19 is supported by unconditional and irrevocable guarantee from Danajamin. Jointly owned by MOF and Credit Guarantee Corporation Malaysia Bhd (majority-owned by Bank Negara Malaysia), Danajamin has the mandate to provide financial guarantee to Malaysian companies to enable access to the PDS market.

CREDIT BRIEF

Company/ Issuer

Sector

Country

Update

RHBFIC View

Malaysia Building Society Berhad (MBSB)

(RAM FI Rating: A2/Sta; Structured Covered Sukuk Rating: AA1/Sta)

FIs

MY

FYE14 revenue rose 3.0% to MYR2.61bn (FY13: MYR2.54bn), with NP surging to MYR393.1m (FY13: MYR133.5bn) mainly due to a one-off deferred tax asset recognition of MYR366m; Average NIPM narrowed 61bps YoY to 3.77% (FY13 avg: 4.375%) while 4Q14 CTI rose to 22.4% (4Q13: 19.6%); Loans grew by 2.4% while deposits declined 2.3%, translating to an increased LDR of 112.7% (FY13: 107.5%); Asset quality improved as 3-month net NPL moderated to 4.1% (4Q13: 5.4%) while LCR ramped up to 76.7% (4Q13: 64.2%);

Neutral on the results. Net interest/profit margins (NIPM) remaining strong owing to its highly-profitable personal financing segment; however, they are undergoing continued pressure amid increasing competition and stricter regulations. MBSB’s growth numbers also confirm challenges on loan growth and deposit retention. On a more positive note, MBSB’s asset quality is improving with the more stringent lending practices, as evidenced by the lower NPL ratios and more prudent loan loss coverage levels.