FW: RHB FIC Credit Market Update - 14/8/15

RHB FIC Credit Market Update - 14/8/15

14 August 2015

Credit Market Update

           

Improved Topline for Planters; Malaysia GDP Grew 4.9% in Q2

APAC USD CREDIT MARKETS                                                    

¨      USD credit ended mixed. The iTraxx AxJ IG tightened 3bp to 116.7 as Chinese stock markets gained 2% after the PBoC assured markets that it would not allow the CNY depreciate substantially. The UST yields widened with the 10y rising 4bps to c2.19%, following stronger July retail sales at 0.6% (consensus: 0.6%; prior: 0.0%), while jobless claims rose slightly to 274k (consensus: 270k; prior: 270k) as markets price in a 50% probability of a Sep hike.

¨      In the secondary market, the average IG Corporates under our widened 2bps to 3.16%. Underperformers were AU IG corporates in ORGAU 21, WOWAU 21, WESAU 16-18 and BHP 17-23s and followed by NOBLSP 18-20s, HKLSP 24, BABA 19-21s and BHARTI 23-24s, while the exceptional gainer in the IG space was RILIN 16 -27 as yields tightened 13-20bps. HY credits traded flat at 8.9%, with gainers mainly in the Chinese real estate names with as COGARD, AGILE, CAPG and FANHAI, although ANTOIL 18 widened as much as 50bps.

¨      On ratings, Maoye International was downgraded by Moody’s to Ba3 from Ba2 with a stable outlook to reflect its weaker revenue growth from its departmental stores (SSS: -8% yoy) and property development segment (SSS: -15% yoy) while its debt leverage is expected to remain elevated reflected by its debt-to-EBITDA of 6.8x. Despite that, the group is expected to maintain its EBITDA margin of 30-40% over the year.

¨      In the primaries front, Beijing Infrastructure (A1/A+/A+) priced a USD225m 2y bond at T+195, while SMC Global Power (NR) plan to meet with investors next week for a USD perp.

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SGD CREDIT MARKETS

¨      SOR curve steepened with the 5y and 10y increased 2bps-6bps to 2.219% and 2.729% respectively. In the corporate space, we note yields widened in banking names - notably, the zero-coupon Senior CBAAU broadened by 3bps-4bps, despite the AUD5bn capital raising plan which will improve its capitalization by 135bps to 10.4%. Elsewhere, OLAM complex 18-22 were seen generally settling flat at 4.255%-5.532%, before the strong result announced this morning where 2Q net profit tripled to SGD94.7m driven by better earnings from its food division.

MYR CREDIT MARKETS

¨      Quiet secondary flows amid volatile govvies. Corporate market were rather muted with only MYR197m reportedly transacted. MAHB Pc24 widened by 4bps to 5.059% while YTLPI 10/24 settled flat at 4.729%, both on MYR30m trades in the absence of fresh leads despite stronger-than-expected growth in 2Q15.

¨      Govvies rebounded as growth of 4.9% exceeds expectation in 2Q15 (consensus: 4.5%, 1Q15 GDP: 5.6%). MGS curve moved lower after days of selling with the 3y-10y benchmarks slipped 1bps-6bps downward to end the day at 3.36%-4.18%; while the Ringgit also recovered by 0.7% to 4.0107/USD compared to Wednesday.

¨      On macro front, our economist revises Malaysia’s GDP forecast for full year 2015 downward to 4.5%-4.8% (from 5% projected earlier), due to the impact from lower oil & gas investment, delayed government spending on weakening of the Ringgit on top of the political noises. Meanwhile, Malaysia trade surplus for 2Q15 fell to MYR7.6bn, from MYR10bn in the earlier quarter

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TRADE IDEA: MYR

Bond(s)	UniTapah 6/27 (RAM: AA2) (Last trade: 19-Jun; Price: 103.14 ; Yield: 5.459%; 10y-MGS+ c.128bps)(O/S: MYR15m)
Comparable(s)	K-ProHawk 12/25 (RAM: AA2) (Last trade: 22-Jul; Price: 103.83; Yield: 4.729%; 10y-MGS+ c.55bps)(O/S: MYR30m)
Relative Value	We continue to see value in UniTapah 6/27 which offer 73bps pick up against K-ProHawk, although the latter is 1.5 years shorter tenure. Nevertheless, we note that the small tranche could constrain its liquidity.
Fundamentals	UniTapah’s credit profile is supported by the following: 1)     Stable business profile. UniTapah runs a concessionaire of 23 years (till Jan-34) to construct and maintain the UITM campus in Tapah, Perak. The campus is estimated to have 3,000 students. Unitapah entitled to receive approximately MYR43.7m/year of availability charges, compared to MYR25-30m annual principal repayments. In addition, the maintenance expenses to be covered under the maintenance charges of c. MYR11.5m in the first 5 years, subject to review every 5y interval thereafter. 2)     Low counter party risk with UITM as paymaster, ultimately from Ministry of Education. 3)     No construction risk. The construction of the campus was completed on Jan-14. 4)     Maintenance risk. We view that the difficulty of the maintenance job is moderate. In addition, an amount of MYR5m is set aside in the designated account (“Maintenance Account 2”) as contingency maintenance funds in the event of insufficient funds in Maintenance Account 1.

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CREDIT UPDATE

Company/Issuer	Sector	Country	Update	RHB FIC View
First Resources Ltd (“FRL”) (RAM: AA2/Sta)	Plantation	SGD	FRL 2Q15 results saw its revenue grew by 23% qoq to USD118m due to higher sales volume, while reporting an EBITDA and net profit of USD54.7m (2Q14: USD61m) and USD29m (2Q14: USD26m) respectively.	Maintain Positive. As an Integrated player, its downstream division help offset the declining palm prices and absorbing the CPO production growth. Meanwhile, Its credit profile remains strong, as its gearing ratio remained at 0.50x and debt to EBITDA of 2.4x (on an annualized basis). Its interest coverage ratio remains healthy at over 10x, further backed by cash at hand as at USD200m, which is more than sufficient to repay short term debts of USD2.1m.
Bumitama Agri Ltd (“BAL”) (RAM: AA3/Sta)	Plantation	SGD	Bumitama 2Q15 revenue was higher at 8% yoy and 18% qoq despite EBITDA margin weakening to 23% (1Q15: 30%).	Maintain Neutral. Being a pure upstream player, it was exposed to the weaker CPO prices which averaged MYR2,200/mt. Its credit profile remains stable as its gearing profile remain unchanged at 0.81x (2Q14: 0.85x), while its interest coverage ratio remains healthy at 10x on an annualized basis.