FW: RHB FIC Credit Market Update - 27/5/15

RHB FIC Credit Market Update - 27/5/15

27 May 2015

Credit Market Update

                                       

Real Estate IG Outperformed HY; Weaker Results from Malaysian Construction Players; Hold AMMB 8/19 Senior MYR  

REGIONAL                                                                                      

¨      Real estate IG outperformed HY; Moody’s revised methodology raises Shinhan Bank to Aa3; Garuda pricing 5y sukuk today. Credit costs picked up 0.8bps, with the iTraxx AxJ IG closing at 106bps. Amid Greece’s looming default prospects, credit markets held firm as yields compressed 2bps on average. We observed real estate IG yields narrowing 4-5bps in general, outperforming HY counterparts which saw yields shedding 2.1bps. Meanwhile, O&G IG yields ended 2.9bps tighter despite a 2.75% drop in Brent crude price to USD63.72/bbl. Elsewhere, Moody’s announced that the Shinhan Bank’s issuer ratings were being upgraded to Aa3 from A1 in accordance with its new methodology. The bank received an upgrade to its standalone scoring, reflecting its strong core financial ratios and exhibiting the strongest asset quality among Korean banks – Shinhan Bank’s bond complex held generally stable for yesterday’s trading session amid the news. On the primary front, we expect new bond sales today from Garuda Indonesia (NR/NR/BBB+idn) with a new 5y sukuk at a 6.25% initial price target, Guangzhou Communications Investment Group (Baa1/NR/A-) for 3y notes at a T+230bps IPT, Fantasia Holdings Group (B2/B+/NR) with USD 3y notes at a 12% IPT, and CIFI Holdings Group (Ba3/BB-/BB-) with USD 5NC3 notes at a 8.125% IPT. In the pipeline, Nonghyup Bank (A1/A/A-) and Zhongrong International Holdings (NR) are planning USD bonds issuances, the former to commence meetings from 1-Jun onwards.

¨      SOR bull flattened; SG 1Q GDP better than expectation at 2.6%; IPI fell 5.8% in April. The 3y-10y SOR flattened yesterday by 1bps-3bps tracking the UST movement. On the primary side, Guacoland is targeting to issue 3.25y bond at IPG of 3.65%. Elsewhere, Agendas REIT issued SGD500m 7y at 3.2% while First Sponsor Group printed SGD50m 3y at 4%. On the macro front, Singapore 1Q GDP grew by 2.6% yoy, better than market consensus of 2.1%. IPI for April fell 5.8%, from +1.2% in March.  

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MALAYSIA

¨      Mixed movements in corporate market; HLFG’s NIM continues to be under pressured; Weaker result from IJM and WCT (Credit Brief). Corporate market closed mixed yesterday amid strong trading activity of MYR1.2bn. We saw a total of MYR75m of Telekom 24 exchanged hands, settling 0.4bps-1.1bps tighter around 4.41%-4.42%. Short-tenure Prasarana 11/16 inched 4.8bps higher to 3.641% on MYR90m trades. Meanwhile, activity in the govvies market were quiet yesterday with merely MYR1.4bn crossed.  Investors are looking forward for the reopening of 7.5y GII with size of MYR3bn (tender closing: Thursday, 28-May).

TRADE IDEA: MYR

Bond(s)	AMMB Holdings Berhad (AMMB) AMMB 8/19 Senior (RAM: AA3) (last price: 98.828, last done: 4.778%; 5y-MGS+121bps) (O/S Amount: MYR500m)
Comparable(s)	·          AmIslamic Bank Bhd (AISL) AISL 3/24c19 B3T2 (RAM: AA3) (last price: 100.74;  last done: 4.857%; 5y-MGS+129bps ) (O/S Amount: MYR150m) ·          AmBank (M) Bhd (AmBank) AmBank 4/17 Senior (RAM: AA2) (last price: 102.17; last done: 4.098%; 3y-MGS+77bps) (O/S Amount: MYR225m)
Relative Value	We reiterate our preference for AMMB 8/19 Senior based on current valuation and spread versus subdebt. AMMB 8/19 continues to offer highest absolute yields for a senior debt issued by a domestic, non-government-owned commercial bank. On its own curve, AMMB 8/19 is now least 20bps wide in terms of yield against AmBank 4/17 Senior after adjusting for tenor (10bps/year), rating (10bps/notch) and structural subordination (10bps). Additionally, the senior-subdebt spread against its Islamic division’s AISL 3/24c19 B3T2 is only 8bps, too narrow in our opinion and favouring AMMB 8/19 from a seniority angle. Moreover, AMMB 8/19’s larger outstanding size of MYR500m offers better liquidity.
Fundamentals	We are comfortable with AMMB’s credit profile after considering its: 1)     Diversified business portfolio and strong franchise in retail and SME lending; 2)     Significant non-interest income contribution at approximately 35-41% of total income; 3)     Support from strategic shareholder, Australia and New Zealand Banking Group Ltd (ANZ), which has benefited its risk management practices and kept impaired loans ratio at bay at 1.79% (LCR: 104.9%); 4)     Solid capitalization metrics, reflected by CET1, Tier-1 and total capital ratios of 10.5%, 11.8% and 15.8% repsectively; and 5)     Moderate-to-high likelihood of support from the government as the sixth largest bank in Malaysia with 7% and 5% shares of system loans and deposits respectively; Our view on AMMB also considers its weaker liquidity in terms of loans-to-deposits of 83.8% versus peers (industry: 81.8%) as well as AMMB’s slightly weaker-than-average NPL ratio of 1.79% (industry: 1.63%), given its higher exposure to retail and SME lending. *All financial data as of 31-Mar 15

CREDIT BRIEF

Company/ Issuer	Sector	Country	Update	RHBFIC View
Hong Leong Financial Group (HLFG) (AA-)	Banking/FI	MY	3Q15 YTD NP -4.7% yoy to MYR1.77bn due to weaker insurance earnings. YTD loan and deposit growth 6% and 5% respectively. Stable LDR of 81%. HLB’s Q3 NIM tighten to 1.81% (2Q15: 1.96%). Improvement in asset quality with NPL of 0.9% (FY6/14: 1.2%). Adequate capitalization – Tier 1: 11.1%, RWCAR: 13.6%.	Maintain marketweight. Financial metrics remain strong on the back of healthy asset quality and ample capitalization.
IJM Corporation Bhd (IJM) (AA3/AA-)	Construction	MY	4Q15 YTD NP -33.7% yoy to MYR713m, a drop partially due to sizeable extraordinary gain in the previous year. Total borrowings increased to MYR6.1bn, gearing edged up to 0.64x (FY3/14: 0.60x). Debt-to-EBITDA weakened to 4.0x (FY3/14: 2.9x).	Maintain marketweight. IJM’s debt profile is still at manageable level with debt-to-EBITDA of 4x. Earning to be supported by its huge construction orderbook of MYR7bn, offsetting weak sentiment in the property market.
WCT Holdings Bhd (WCT) (AA-)	Construction	MY	1Q15 NP -18% yoy to MYR33m on slower property division and completion of construction projects. Gearing and debt-to-EBITDA stayed relatively high at 1.0x and 9.6x respectively.	Neutral. Looking forward, construction division to support the Group’s earnings. Currently, WCT has c. MYR2.6bn of external projects (c. 1.8x of FY14 construction revenue). However, we view that high gearing and subdued property segment give rise to the likelihood of rating outlook revision.