RHB FIC Credit Market Update - 17/3/15

17 March 2015

Credit Market Update

USD Credits Extended Gains; Value in HLB 24c19 MYR

REGIONAL                                                                                      

¨      CDS stayed flat, yields headed south. In the CDS space, iTraxx AxJ moved sideways to close at 105.5bps. UST yields declined 3-5bps overnight along the mid- to long-end on lower inflation expectations following fall in oil prices, alongside support from weak empire manufacturing (actual: 6.9, consensus: 8.0) and industrial production (actual: 0.1%, consensus: 0.2%). In the secondary credit space, USD IG credits extended gains, led by financial names such as CINDBK 20 subdebt, BBLTB 22 senior and CBAAU 20 senior. In the HY space, Kaisa 18 dipped yesterday after ‘white knight’ Sunac found Kaisa to be probably in the red last year in its due diligence exercise (in contrary to the FY13 reported net income of c.USD464m). Looking ahead, FOMC meeting begins today while US housing starts tonight may tilt weaker, potentially supporting yields. On the primary front, BOC Aviation (BBB/NR/A-) is eyeing USD bonds with investor meetings commencing tomorrow.

¨      New ANZ B3T2 draws USD700m orders. The SOR curve bear flattened yesterday, with 3y and 5y rates widening 4.25bps and 2.7bps to 1.817% and 2.172% respectively. In the secondary market, flows were moderate as investors are likely staying on the sidelines ahead of the FOMC meeting; we noted gains in recently-issued names, FCLSP Pc20, CWTSP 20 and GALVSP 17 on buying interest. On the primary front, Australia and New Zealand Banking Group Limited’s new SGD500m B3T2 print drew SGD700m in orders from mostly insurers (68%) and priced at 3.75%. Meanwhile, Rowsley Ltd. (NR) is planning to sell 3y SGD bonds at an initial price target of 6.5%.

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MALAYSIA

¨      Strong corporate flows on the long end. The bond market was traded thinly yesterday with just MYR313m and MYR1bn volumes in the corporates and sovereigns respectively. TF Varlik 6/19 saw MYR45m exchanged hands, widened 4bps to 5.747%.  Meanwhile, DanaInfra 7/22-11/44 crossed at 4.251%-5.095% on combined MYR40m trades. On the govvies front, the MGS curve ended flatter with the 7y and 10y-MGS falling to 3.788% (-3bps) and 3.926% (-12bps) respectively; while the 3y and 5y moved sideways.

TRADE IDEA: MYR

Bond(s)	Hong Leong Bank Berhad (HLB) HLB B2T2 4.5% 6/24c19 (Trade date: 4-Mar; Price: 98.23; Yield: 4.96%; 5yMGS+c.131bps) (RAM: AA2) (Amt O/S: MYR1.5bn)
Comparable(s)	RHB Islamic (RHBA) B3T2 4.95% 5/24c19 (Trade date: 5-Mar; Price: 100.94; Yield: 4.698%; 5yMGS+c.105bps) (RAM: AA3) (Amt O/S: MYR500m) Ambank B3T2 5.2% 12/23c18 (Trade date: 11-Feb; Price: 100.67; Yield: 5.006%; 5yMGS+c.136bps) (RAM: AA3) (Amt O/S: MYR400m) HLB B3T2 4.8% 6/24c19 (Trade date: 11-Mar; Price: 99.13; last yield: 5.026%; 5yMGS+c.138bps) (RAM: AA2) (Amt O/S: MYR500m)
Relative Value	We recommend to switch from RHBA B3T2 5/24c19 to HLB B2T2 6/24c19. At 4.96%, HLB B2T2 6/24c19 offers a pickup of 26bps over 1-notch lower rated RHBA B3T2 5/24c19. In addition, RHBA B3T2 appears 31bps premium in relative to its AA3 peers, Ambank B3T2. We also prefer the old-style paper which is not subject to PONV, lower extension risk and scarcity value. Within HLB space, we favor HLB B2T2 over HLB B3T2 due to the latter low PONV premium of c. 7bps, where we believe that the PONV premium should be wider by at least 10-15bps.
Fundamentals	We remain comfortable with HLB’s credit profile, supported by following key credit drivers: 1)      Sizeable market position as the fifth-largest Malaysian commercial bank, with 8% estimated market shares in both system loans and deposits; 2)      High asset quality, reflected by its gross impaired loans ratio of 0.98% (industry: 1.66%) and fairly high proportion of secured mortgage loan assets (45% of gross loans); 3)      Decent profitability metrics, having a net interest margin of 2.06% (industry: 2.20%); 4)      Sound liquidity, as evidenced by its loan/deposit ratio of 81.3% (industry: 81.8%); and 5)      Adequately capitalized, based on CET1, T1 and total capital ratios of 10.8%, 12.2% and 14.7% (industry: 12.4%, 13.1%, 15.1%) respectively. *All financial data as of 30-Dec 14

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	RHBFIC View
WCT Bhd (“WCT”) (RAM - AA3)	Construction	MY	Proposed a 1-for-10 right issue of up to 143.2m new shares at indicative price of MYR1.00. The right issue estimated to raise MYR141.2m net proceeds for working capital purposes.	Neutral. The estimated net proceeds of MYR141.2m has limited impact to WCT’s gearing profile. Pro-forma gearing expected to remain high at 1.0x (from 1.07x in FYE14), in relative to peers’ average gearing of 0.7x.