RHB FIC Credit Market Update - 3/3/15

3 March 2015

Credit Market Update

Yields Tilted North on Risk Appetite Addition; Value in HKCGAS 8/18 USD

                                                                               

REGIONAL

                                                                                                          

¨      Baidu’s outlook upgraded; Noble’s widening continued. The USD IG space saw better selling yesterday, led by commodity names such as NOBLSP 15-20 and CNOOC 28-39 amid untamed oil prices. NOBLSP 20 continued widening despite affirmations by S&P and Moody’s post FY14 results to remain within its rating band. CN real estate names similarly suffered selling pressure with papers like SINOCE 27, CHIOLI 22-24 and GRNLGR 19-24 widening. iTraxx edged narrower to 96.9bps (-1.9bps). Moody’s upgraded Baidu’s outlook to positive (from stable) (A3/pos; NR; A/sta) on better-than-expected financials strong robust mobile traffic and higher number of advertisers using Baidu’s keyword search platform. Meanwhile, UST yields rose 4-9bps amid rallies in equities as investors seek for higher returns amid increased risk appetite. On the primary front, Chinese developer Times Property (B2/B/B+) printed USD280m 5NC3 at 11.625% (initial guidance of c.11.875%).

¨      General two-way flows; investors eyeing SG PMI. We saw the short-to-mid curve steepen yesterday, with the 3y widening by +3.75bps (to 1.62%) while the 5y saw a lesser broadening by +1.8bps (to 2.0%). In the credit space, we observed general two way flows, with buying interest in short-dated REITs like MLTSP and CREISP while similar mid-to-long dated names like FCTSP and SSREIT traded a couple of bps wider. Investors will be eyeing the SG Feb PMI that will be released tonight (previous: 49.9) for further indication of SG’s industrial sector trajectory after the recent lackluster SG Jan Industrial production results (actual: +0.9%; consensus: +3.3%). In the primaries, Frasers Centrepoint Ltd (NR) issued a SGD700m Pnc5 at a final price of 5.0%.

MALAYSIA

¨      Interests in SEB complex; Local govies ended flat. Corporate credit market ended with mixed results amid strong flows of MYR566m. With overall activity tilted towards long-duration bonds, we saw SEB complex tightening by 2-3bps, closing at 4.519%-4.939% for tranches maturing 6/21-1/27 on combined trades of MYR165m. In the GG space, BPMB 9/24 and Prasarana 8/23, each traded on MYR60m volumes, settled at 4.38% (-2bps) and 4.33% (+2.8bps) respectively. Meanwhile, MGS/GII closed the day flat where activity remained thin at MYR2.33bn amid the MPC meeting and heavy global economic data which will be released this week. GII 8/20 topped the volume chart with MYR670m exchanging hands, crossed at 3.779%.

TRADE IDEA: USD

Bond(s)	HKCGAS 8/18 (ytm: 2.28%; T+ c.130bps) (A1/A+/-)
Comparable(s)	BEIENT 5/21 (ytm: 3.35%; T+c.155bps) (A3/BBB+/-)
Relative Value	We reiterate our preference for HKCGAS 8/18 as the paper has slightly widened by 3bps since initiation (Credit Market Update dated 24-Nov-2014). We opine that there is room for pick-up of about 10-20bps if compared to BEIENT 5/21, adjusting for difference in duration and rating.
Fundamentals	We like Hong Kong & China Gas Co (Towngas) as: 1)     Displays solid fundamentals. Hong Kong’s sole gas provider has better fundamentals compared to its gas peers in the mainland, with its EBITDA Interest Coverage at 9.2x (peers: 6.8x) and Total Debt/ EBITDA at 3.6x (peers: 4.0x). 2)     Hong Kong monopoly with China growth story. The company has a regulated monopoly in Hong Kong, hence it provides stable and uninterrupted cash flows. It also has exposure to the less-regulated gas supply business in mainland China via its 62.39% holding in Towngas China, thus providing some potential upside 3)     Comfortable and stable EBITDA margins. Towngas has historical EBITDA margins of around 30%, with around 90% of EBITDA derived from its regulated business. As Towngas is expanding into the less-regulated business in mainland China, this may see more cyclicality in revenue, though margins are expected to improve correspondingly. China gas peers: Beijing Enterprise, China Gas , China Resources Gas, China Oil & Gas, ENN Energy

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	RHBFIC View
Eversendai Bhd (“Eversendai”) (RAM - AA3/Neg)	Construction	MY	Secured MYR269.2m contract for construction of Al-Wahda Arches and Vistors’ Centre in Doha, Qatar.	Maintain underweight. While orderbook is estimated to increase to MYR1.6bn (or 1.6x of FY14 revenue), we view that Eversendai’s rating could continue to be pressured by its high debt profile with gearing of 0.87x and debt-to-EBITDA of 7.86x (including its operating lease commitment).