FW: RHB FIC Credit Market Update 050515

RHB FIC Credit Market Update 050515

5 May 2015

Credit Market Update

Huawei Explores USD Issuance; Partial SWIBSP Buyback; MYR Credits Sustain Momentum                                       

REGIONAL                                                                                      

¨      Monday blues as investors prepare for new deals; Huawei exploring USD issuance. Credit protection costs declined 0.85bps to 105bps during yesterday’s quiet session. Asian markets opened to marginally increased (0.5-1bps) USTs following improved initial jobless claims data of 262K (consensus: 290K; prior: 295K). In China, PMI numbers came up flat at 50.1 versus expected and prior figures of 50.0 and 50.1 respectively. IG credit yields ended softer, spiking13bps on average, although we noted the recent issues from CNOOC and SINOPE trading firm. Meanwhile, those that fared worse were TNBMK 15, AXSBIN 15, OGIMK 23 and SIMEMK 18, all of which saw their yields rise more than 8bps. On the primary front today, Shinsegae Inc. is selling USD300m 30y PNC5 notes, guaranteed by Kookmin Bank (A1/A/A), at initial price guidance of T+150bps, while China Energy Reserve (NR) is expected to sell USD 3y notes at an IPT of around 5.375%. In the pipeline, global ICT giant, Huawei, is planning a USD Reg S issuance, to be guaranteed by Huawei Investment & Holding Co. (NR), with meetings commencing from 6-May, while Hong Kong-based Hsin Chong Construction (NR) is planning investor meetings tomorrow for a potential USD issue. In the banking space, China Construction Bank will conclude meetings today for its upcoming USD T2 issuance.

¨      SORs widen in tandem with USTs; SWIBSP buys back some of its perp. The short-to-mid SORs widened considerably by around 7-7.5bps, with the 3y and 5y closing at 1.63% and 2.02% respectively, in tandem with movements in the USTs due to recent positive US initial jobless claims and manufacturing data. In the secondary market, we saw interest into yielder names such as CWTSP, PAHSP and OLAMSP while SWIBSP complex saw better bids amid the news that it bought back SGD0.75m from its SGD80m SWIBSP PcSept-2015. Singapore’s industrial outlook continues to look sluggish, with the SG April PMI coming in at 49.4, the fifth consecutive contraction.

¨       

MALAYSIA

¨      MYR Bonds sustained momentum ahead of long weekend. Both corporate bonds and govvies yields inched lower, clocking gain of c.1-3bps across the board as buying momentum continues. There were total of MYR3.417bn and MYR493m transacted for both govvies and corporates. MGS 10/20 yields fell 1.5bps to 3.587% with total MYR653m changed hands, followed by MGS 9/17 at 3.287% (-3.1bps) and GII 10/25 at 3.965% (-0.7bps) being the top 3 active in the govvies segment. Onto corporates, Rantau 8/19 was the most active with MYR115m transacted ending the day at 4.0149% (-3.1bps) followed by CTX 8/17 at 4.046% (MYR75m done) and Danainfra 7/24 at 4.301% (MYR50m done).

TRADE IDEA: USD

Bond(s)	Alibaba Group Holding Ltd (BABA) 11/19 (A1/A+/A+) (Price: 99.68; YTM: 2.57%; Z+101.0bps) (Amt o/s: USD2.25bn)
Comparable(s)	Tencent (TENCNT) 05/19 (A2/A/NR) (Price: 102.99; YTM: 2.58%; Z+114.4bps) (Amt o/s: USD2bn) Tencent (TENCNT) 02/20 (A2/A/NR) (Price: 100.43; YTM: 2.78%; Z+117.4bps) (Amt o/s: USD1.1bn) Baidu (BIDU) 06/19 (A3/NR/A) (Price: 100.88; YTM: 2.52%; Z+105.8bps) (Amt o/s: USD1bn)
Relative Value	We reiterate BABA 19 as it still remains attractive in the USD China Internet space given the high likelihood of continued robust growth and profitability as the key upside catalysts. We opine BABA 19 still offers around 10-15bps pick-up against lower-rated BIDU 19 and TENCNT 19-20 despite its yield widening 6bps since our initiation on 30 March, against 3bps wider for BIDU 19 and 13-15bps wider for TENCNT 19-20.
Fundamentals	We are comfortable with BABA's fundamentals given: 1)     Dominant market position as the world’s largest e-commerce company in terms of gross merchandise volume (GMV). Its three retail marketplaces accounted for 80% of China's total online shopping GMV which generated a combined GMV of USD250bn in 2013, compared to eBay Inc.’s USD83bn and Amazon.com’s USD116bn; 2)     High profitability and uninterrupted earnings growth with wide EBITDA margin of 40.5% in Dec-14 (Dec-13: 49.7%) and revenue CAGR of c.80% between FY10 to FY14; 3)     Growth potential from China's relatively low consumption-to-GDP ratio and Internet penetration, which means a large pool of potential shoppers have yet to come online; and 4)     Low leverage and sound liquidity with debt/EBITDA of 2.3x and net cash balance of CNY144.6bn against ST borrowings of CNY19.1bn and total debts of CNY69.2bn as at Dec-14 (Dec-13: 1.6x, CNY51.3bn, CNY10.1bn, CNY40.8bn).