8 May 2015
Credit Market Update
Risk
Sentiment Dips Post-Yellen Comments; Buying in SGD O&G and Property; BNM
Maintains OPR
REGIONAL
¨
Risk sentiment
dips post Yellen comments; attention on fresh prints continues. Credit protection costs continued an uptrend as the
iTraxx AxJ expanded 2.4bps to 109bps yesterday as risk sentiment took a hit
amid mixed US Fed signals. Credit sentiment also ebbed as financial markets in
the US and APAC dipped, following a lackluster China PMI print (actual: 51.3;
prior: 51.8). Trading flows were down and IG credits were 1-2bps wider in
general. However, the recently-priced CCB USD2.0bn 10NC5 B3T2s close 5bps
firmer from reoffer of T+242.5bps, and Kunlun Energy’s 5y and 10y notes holding
stable at reoffer levels of T+140bps (IPT: T+165bps) and T+165bps (IPT:
T+190bps) respectively. In the primaries, Hsin Chong Construction Group (NR)
sold USD250m 3y notes at 8.75% (IPT: 9.25%) while China Merchants Bank Co.
(New York Branch) (Baa1/BBB+/BBB) raised USD500m 3y senior notes at
T+147.5bps (IPT: T+170bps). In the pipeline, China Metallurgical Group Corp
(Baa3/BBB-/NR) is planning for bond meetings from 11-May. Important
economic data remaining this week is nonfarm payroll data from the US expected
tonight.
¨
SOR curve
steepens; Buying into O&G and property names. The short-to-mid SOR curves continued to widen, with
the 3y and 5y broadening by 6.4-7.7bps to close at 1.79% and 2.2% respectively,
even as similar duration Treasury yields marginally rose. Interest continued on
O&G names such as NCLSP and KRISSP and property names like WINGTA and
HENLDN while the steep rise in SORs have gotten RM accounts reassessing and
seeking for undervalued IG names.
¨
MALAYSIA
¨
BNM maintain
OPR at 3.25%; MBSB profit dropped by 37% y-o-y for 1Q15 (refer Credit Brief). Ringgit credit traded sideways yesterday amid strong
flows of MYR686m. Trading interests were tilted toward long-tenure bonds –
notably, BRB 1/31 closing flat at 5.296% on MYR50m trades; and BGSM 6/24 inched
0.5bps higher to 5.01% (MYR40m). On the govvies side, the 5y-10y MGS benchmark
moved 4bps-5bps upward as MYR depreciated to 3.5942/USD following hawkish tone
from the Fed Yellen yesterday.
TRADE IDEA: MYR
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Bond(s)
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Hong Leong Bank
Berhad (HLB)
HLB
LT2 4.5% 6/24c19 (Trade
date: 7-May; Price: 99.58; Yield: 4.612%; 5yMGS+c.100bps) (RAM: AA2) (Amt
O/S: MYR1.5bn)
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Comparable(s)
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Maybank
LT2 4.25% 5/24c19 (Trade
date: 29-Apr; Price: 98.76; Yield: 4.591%; 5yMGS+c.98bps) (RAM: AA1) (Amt
O/S: MYR2.1bn)
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Relative Value
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We
recommend to take profit on HLB LT2 6/24c19 which has tightened by
38bps (return of 2.8% since initiation on 30-Jan) and switch to Maybank
LT2 5/24c19. At 4.591%, we see value in Maybank LT2 which was trading
merely 2bps below HLB LT2, despite the former is one notch higher rated.
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Fundamentals
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We are comfortable
with Maybank’s credit profile, supported by following key credit drivers:
1)
Largest banking group in Malaysia, with c.16% estimated
market shares in both system loans and deposits;
2)
High asset quality, reflected by its gross impaired
loans ratio of 1.52% (industry: 1.63%) and adequate loan losses coverage of
95.6% (industry: 98.7%);
3)
Decent profitability metrics, having a net
interest margin of 2.34% (industry: 2.32%);
4)
Adequately capitalized, based on CET1, T1
and total capital ratios of 11.75%, 13.54% and 16.23% (industry:
12.5%, 13.2%, 15.2%) respectively.
*All
financial data as of 30-Dec 14
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