Credit Market Watch: Summary for week ending 24-Nov
· MYR Credit:
Ø MGS was lifted by the Ringgit strengthening to its highest level against the USD in a year. Yield curve flattened with the 5y and 15y yields down 10bps and 19bps, while the 10y yield only dipped 2bps WoW. Corporate bond yields followed suit to fall 1-5bps WoW with quasis outperforming other credit curves amid still thin trading (MYR1.4b volume vs MYR1.7b previous week).
Ø Northport (Malaysia) Bhd: Priced 5y IMTNs at the upper end of initial price guidance for a final yield of 5.00% to raise MYR100m from its MYR1.5b ICP/IMTN programme, which has MYR350m outstanding.
Ø Inflation: Headline inflation slowed down to 3.7% YoY in October (Sep: 4.3%) on smaller increases in fuel and food prices, and core inflation edged lower to 2.3% (Sep: 2.4%). Recent upward drift in crude oil prices increases upward pressure on inflation but the high base in 4Q16 will moderate the impact and limit Nov-Dec inflation rate. Our economic research kept 4.0% headline forecast for 2017 and expects 2018 inflation to moderate to 2.5-3.0%, coinciding with a single +25bps OPR hike.
Ø Sunway Berhad (Sunway): Outlook raised to positive by MARC, citing sturdier financial position on the back of strong replenishment in construction order book which was MYR6.7b as of mid-Oct, improved income from other business segments and reduced dependence on local property development which has been lackluster. 1H17 pretax income up 12% YoY and net gearing was 0.41x. Ratings of Sunway’s MYR2b CP/MTN programme and its guaranteed MYR2b ICP/IMTN programme by Sunway Treasury Sukuk Sdn Bhd were reaffirmed at AA-.
Ø Relative value: FRL 2021 seem to offer value last trading at 4.67% (5bps below our fitted AA2/AA) relative to UMW 2021 which dealt at 4.62%. We prefer FRL as CPO price is expected to overall remain firm in 2018 as our plantation analyst forecasts an average MYR2,600/t (2017F: MYR2,700/t), while Toyota’s ongoing production transition would give competitors an upper hand.
· Asian Credit:
Ø UST curve flattened again with the 2y yield up 2bps while the 10y yield flat WoW. 2y10y spread narrowed to 60bps from 126bps at the beginning of the year, 150bps at end-2014 and 265bps at end-2013. The curve could get flatter as the Fed proceeds with rate normalisation amid tepid inflation.
Ø Asian credits spreads were little changed with JACI composite, JACI IG and JACI HY all almost flat WoW. Sovereign space outperformed with generally tighter yields. INDON and PHILIP curves were about 2-6bps lower while CHINA, KOREA and MALAYS yields were mixed between +/-2bps WoW.
Ø Rating change: Sime Darby Bhd was given a lower rating of BB+ by Fitch having obtained shareholder and regulatory approval for the demerger of its plantation and property divisions. Key rationales cited by the agency were significantly smaller scale and lower diversification with the remaining motor and industrial equipment businesses, which is believed to be more sensitive to economic cycle volatility. The BB+ rating by Fitch is lower than Moody’s Baa3 which was rated in October also on a post-demerger basis.
· CDS: EM Asia 5y CDS spreads were on tightening bias led by Malaysia and Korea -3bps each, followed by Indonesia and Philippines -1bp each while Thailand was flat and China added 1bp WoW.
Thank you.
Regards,
Winson Phoon, ACA
(603)2074 7176
Se Tho Mun Yi
(603) 2074 7606
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