RHB FIC Credit Market Update - 8/4/15

8 April 2015

Credit Market Update

Interest in O&G Names; Maybank to Issue Samurai Bonds; Value in Boustead 6/16 MYR

REGIONAL                                                                                      

¨      Interest in long-dated O&G names. iTraxx AxJ narrowed 2.25bps to 108.25bps as oil price holding well, catching interest on the longer-dated state-owned O&G names. Interest was seen on CNOOC 23-39, SINOPE 42-43 and PERTIJ 41-43 on firmer Brent prices (+1.7% overnight to USD59.1/bbl). Meanwhile, China Overseas Grand Oceans’ (Baa2/BBB-/BBB) saw its outlook lowered to negative by S&P.

¨      Active flows in property space. The short-to-mid SOR saw some widening, with the 3y and 5y closing at 1.64% (+2.65bps) and 1.95% (+3.7bps) respectively. In the corporate market, we saw some buying interest into real estate names like HPLSP and UOLSP while oil & gas names like EZRASP and EZISP traded a couple of bps wider. In the primaries, real estate player OUE Ltd (NR) is printing a SGD 5y at initial guidance of around 4%.

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MALAYSIA

¨      Better flows in PDS market; Strong demand for the new 10.5y GII; Maybank to issue Samurai bonds. Activity pick up by 82% in the corporate space to MYR783m volumes compared to previous day, with more than half of the transactions were concentrated in quasi-government bonds. Overall, the credit market ended in mixed tones, tilted toward tightening territory, while investors remained focused in the mid-to-long end papers. Notably, Prasarana 3/19 topped the chart with MYR130m trades, settled flat at 3.863%; while BPMB GG complex 9/24-9/34 narrowed 6bps-19bps to 4.299%-4.714%. Also seen were MCIL 2/17 fell 1bps to 4.264% (MYR80m dealt); and KT Kira 3/20 closed 5bps lower than par at 5.748% on its debut trade. On the govvies front, trading flows were heavier in the GII space, amid the encouraging auction for new 10.5y GII 10/25 which ended with 2.75x BTC on average yield of 3.99%. At the closing bell, the 5y, 7y and 10y-GII settled at 3.634% (+3.1bps), 3.823% (+0.6bps) and 4.017% (-0.8bps). Meanwhile, Malaysia’s foreign reserve for Mar-15 fell to USD105.1bn, a drop of USD5.4bn since end-Feb. On the primary front, Maybank is planning to issue senior unsecured Samurai bonds (Moody’s: A3), while Taliworks Corp will issue MYR210m Sukuk for refinancing purpose, via its subsidiary Grand Sepadu.

TRADE IDEA: MYR

Bond(s)	Boustead Holdings 6/16 (RAM: AAAbg) (Last trade date: 9/2/2015; Price: 99.62; Yield: 4.189%; MTM Yield: 4.115%) (Amt o/s: MYR49m)
Comparable(s)	Aquasar Capital Sdn Bhd (SARACA) 7/16 (RAM: AAAs) (Last trade date: 18/3/2015; Price: 100.22; Yield: 3.976%; MTM Yield: 3.963%) (Amt o/s: MYR100m)
Relative Value	We like this Boustead short-term, offering 22bps marked-to-market yield pick-up relative to our proprietary AAA MYR curve. In particular, the BOUS 6/16 offers up to 15bps yield pick-up (adjusted) relative to SARACA 16. Additionally, the issue is insulated from any downside risks by the bank guarantee by Maybank and Public Bank (Pari Passu with Senior Unsecured). Nonetheless, we acknowledged the liquidity issue given to its very small outstanding issue.
Fundamentals	We are comfortable with BOUS's fundamentals given: 1)     Diversified earnings base: PBT improved 20.1% to MYR685.7m in FY14 with contributions from property development (43%), finance and investments (16%), pharmaceutical (15%), plantation (13%), trading & manufacturing (9%), and heavy industries (4%); 2)     Strong shareholder support (58.9% owned by LTAT) and linkage to government, as evidenced by various award of government concessions to manufacture and distribute pharmaceutical products domestically via Pharmaniaga, as well as naval and commercial vessel construction projects (BHIC); and 3)     Modest but improving credit fundamentals of net debt-to-EBITDA of 7.3x and EBITDA interest cover of 2.8x, and cash ratio 0.17% in FY14 (FY13: 8.6x, 1.6x, 0.11%), and cash balance of MYR1.16bn sufficient to cover maturities over the next three years (2015-17: MYR490m, MYR410m, MYR162m).