OCBC TREASURY RESEARCH - Asian Credit Daily Friday, May 6, 2022
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
OCBC TREASURY RESEARCH Asian Credit Daily Friday, May 6, 2022 Market Commentary ▪ Shorter tenors traded 1-2bps lower, belly tenors traded 0- 1bps lower, while longer tenors traded 1bps higher (with the exception of the 30Y which traded 1bps lower) across the SGD SORA curve yesterday. ▪ There were heavy flows in SGD corporates yesterday, with flows in HSBC 4.7%-PERPs, OHLSP 6.9%'24s, CS 5.625%- PERPs, SINTEC 4.2%-PERPs and UBS 4.85%-PERPs. ▪ UST 10Y yields traded 11bps higher to 3.04% yesterday. This comes in stark contrast to the downwards move following the Federal Open Market Committee (“FOMC”) release the prior day. Separately, US initial jobless claims for the week ended 30 April came in higher than expected at a 200,000 increase, as compared to Bloomberg median estimates and the prior month’s 180,000 increase. Preliminary nonfarm productivity data for the first quarter of 2022 also fell faster than expected at the fastest pace in almost 75 years (since the third quarter of 1947), falling by a 7.5% annualized rate compared to Bloomberg estimates of a 5.3% decrease and in sharp contrast to the prior quarter’s 6.6% increase. The release of the April jobs market data including nonfarm payrolls and the unemployment rate by the US Bureau of Labour Statistics tonight (Singapore time) will be the next key economic data for investors. Credit Summary: ▪ Credit Agricole Group (“CAG”) | Issuer Profile: Neutral (3): CAG announced its 1Q2022 results. CAG’s 1Q2022 results were impacted by conservative approaches towards the cost of risk and is in line with management’s previously guarded outlook. Cushioning this is CAG’s solid capital position and business positions, which in our view insulates fundamentals at the Neutral (3) issuer profile. ▪ Frasers Logistics & Commercial Trust (“FLCT”) | Issuer Profile: Neutral (3): FLCT reported 1HFY2022 results for the half-year ending 31 Mar 2022. We think FLCT is relatively sheltered in the near to medium term despite rising interest rates as 82.6% of borrowings are fixed. We continue to hold FLCT at a Neutral (3) Issuer Profile. ▪ Macquarie Group Limited (“MQG”) | Issuer Profile: Neutral (3): MQG announced its FY2022 results for the year ended 31 March 2022. We expect performance to remain resilient at the Neutral (3) issuer profile given its business composition and diversity as well as management’s considered and selective strategy that should position the group for medium term opportunities. ▪ Société Générale (“SocGen”) | Issuer Profile: Neutral (4): SocGen announced its 1Q2022 results. SocGen’s performance appears resilient despite current market challenges. We continue to review the numbers, but see SocGen’s Neutral (4) issuer profile as sound in our view.
OCBC TREASURY RESEARCH
Asian Credit Daily
Credit Headlines
Credit Agricole Group (“CAG”) | Issuer Profile: Neutral (3):
▪ CAG announced its 1Q2022 results with reported net income down 24.1% y/y to EUR1.33bn. This was
driven by a higher Single Resolution Fund contribution as well as a 65.5% y/y rise in the cost of risk
that added to the impact of higher expense growth than the growth in revenues. In addition, there
were positive extra-ordinary impacts of EUR154mn. Excluding one-off impacts, underlying net income
was down 7.2%% y/y to EUR1.48bn.
▪ Revenues rose 7.0% y/y to EUR9.68bn, aided by higher activity in all business lines. Loan production
in French retail banking was up 13.8% y/y in 1Q2022 with growth across home loans, corporates and
small businesses and consumer loans. Consumer finance and leasing activities also rose y/y by
15.9%. Asset gathering and Large Customers also saw solid growth
▪ Costs though rose at a higher pace of 7.4% y/y due to the integration of Lyxor (sold from SocGen to
Amundi which is now majority owned by CAG), consolidation of CACF NL and CACF Spain (buyback by
CAG) and Olinn (acquired by Crédit Agricole Leasing & Factoring), as well as investments in Asset
Management and IT projects in the Large Customers division. Along with the 70.1% y/y rise in
contributions to the Single Resolution Fund due to a lower base in 1Q2021 (from a EUR185mn refund
for overpayments over 2016-2020), CAG’s gross operating income fell 3.3% y/y to EUR2.98bn.
Underlying gross operating income excluding the Single Resolution Fund was up 3.5% y/y.
▪ As mentioned previously, the cost of risk rose 65.5% y/y to EUR888mn. This comprises EUR195mn for
specific items and EUR693mn in underlying risk costs, still 29.1% higher y/y.
o The specific items relate to the full provisioning for Ukrainian equity risks.
o Underlying risk costs comprise EUR480mn in stage 1 and 2 risk costs – this includes EUR346mn
in risk costs raised for performing exposures in Russia. EUR190mn in stage 3 or non-performing
risk costs includes EUR63mn tied to the Russia-Ukraine conflict.
o Management has indicated that Russian exposures have declined materially by EUR1.1bn since
the conflict began with EUR4.4bn of exposures as at 31 March 2022. EUR3.1bn of this is related
to off-shore on-balance sheet exposures.
o Other movements in risk costs were preemptive with provisioning for stage 1 and 2 (or
performing) loans up 227% y/y that overshadowed a 49% y/y fall in provisioning for stage 3
exposures.
o Most of the risk costs were recognized in Corporate and Investment Banking.
▪ Supporting the fall in stage 3 provisioning, loan quality appears resilient. The doubtful loan ratio
remained stable q/q at 2.0% as at 31 March 2022 while the loan coverage ratio improved to 89.6% as
at 31 March 2022, up from 87.5% as at 31 December 2021.
(Continued on the next page) Page 2OCBC TREASURY RESEARCH
Asian Credit Daily
Credit Headlines
Credit Agricole Group (“CAG”) | Issuer Profile: Neutral (3):
▪ Offsetting the muted headline performance is CAG’s capital position which remains well above
minimum requirements. The phased in 17.0% ratio as at 31 March 2022 was down 50bps q/q against
the phased in 17.5% CET1 ratio as at 31 December 2021. Management have confirmed the 50%
dividend payout policy and the intention to pay an additional 20 cents on the 2019 dividend in 2023.
o That said, it remains around 8.1ppt above CAG’s 8.9% Supervisory Review and Evaluation
Process threshold that was recently affirmed for 2022 following completion of the European
Central Bank’s (“ECB”) 2021 Supervisory Review and Evaluation Process (“SREP”). The fully
loaded CET1 ratio was 16.7% as at 31 March 2022, down from 17.2% as at 31 December 2021.
o The distance to its Maximum Distributable Amount (“MDA”) trigger which is defined as the
lowest of the respective distances to the SREP requirements for CET1, Tier 1 and total capital
was 733bps or EUR43bn in capital as at 31 March 2022.
o Its total loss absorbing capacity (“TLAC”) ratio was 25.9% as at 31 March 2022, 440bps or
EUR26bn above the minimum 21.5% requirement which includes a minimum TLAC ratio of
18.0% and the combined buffer requirement including the 2.5% capital conservation buffer,
1.0% combined capital buffer and the counter-cyclical capital buffer).
▪ CAG’s 1Q2022 results were impacted by conservative approaches towards the cost of risk and is in
line with management’s previously guarded outlook given uncertainties on supply chain bottlenecks,
demand normalisation, withdrawal of government monetary support and the trajectory of inflation.
Cushioning this is CAG’s solid capital position and business positions, which in our view insulates
fundamentals at the Neutral (3) issuer profile. (Company, OCBC)
Page 3OCBC TREASURY RESEARCH
Asian Credit Daily
Credit Headlines
Frasers Logistics & Commercial Trust (“FLCT”) | Issuer Profile: Neutral (3)
▪ FLCT reported 1HFY2022 results for the half-year ending 31 Mar 2022. Revenue rose 1.7% y/y to
SGD235.7mn while net property income rose 2.1% y/y to SGD183.6mn. This is due to the full six
months contribution from acquisition of interest in six properties in Germany, the Netherlands and
the United Kingdom in June 2021 though partially offset by the divestment of remaining 50% interest
in 99 Sandstone Place in Nov 2020 and three leasehold industrial properties in South Australia in
March 2021.
▪ Occupancy rate fell q/q to 96.1% (1Q2022: 96.9%). While the logistics & industrial (“L&I”) portfolio
remains fully occupied, commercial portfolio occupancy rate fell to 90.5% (1QFY2022: 91.0%) with
further softening in Alexandra Technopark (occupancy fell 2.3 ppts to 92.5%), Farnborough Business
Park (fell 8.8 ppts to 78.4%) and Blythe Valley Park (fell 2.5 ppts to 85.3%). With companies returning
to office in general, it remains to be seen if the decline in occupancy would be transitory given the
strong connectivity of these properties to city centres and/or major transportation routes. We are
not overly worried though given that only a mere 3.3% of the leases by gross rental income will
expire by Sep 2022, of which 1.8% out of 3.3% are L&I leases.
▪ Meanwhile, rental reversion is +2.1% for L&I and +3.5% for the commercial portfolio, comparing the
midpoint gross rent (including any contracted fixed annual rental step-up) of the new lease with the
preceding lease.
▪ Aggregate leverage fell q/q to 33.1% (1QFY2022: 34.3%) despite a marginal increase in gross
borrowings mainly due to increase in total assets arising from SGD169.7mn divestment gain on the
SGD810.8mn sale of Cross Street Exchange. With SGD395mn of borrowings repaid in April 2022 using
the sale proceeds from the divestment, aggregate leverage has declined further to 29.5% post-
results. This is in spite of several outlays such as forward-funding of a prime warehouse in UK with
committed lease of 15Y (completion targeted in early 2023), development of “Connexion II” at Blythe
Valley Park (completion in end-2022) and capex. While FLCT is expected to deploy the use of
proceeds in order to maintain its distributable income to unitholders, accretive acquisition
opportunities has likely become scarcer given the compression in cap rates.
▪ We think FLCT is relatively sheltered in the near to medium term despite rising interest rates as
82.6% of borrowings are fixed. Meanwhile FLCT does not have significant direct exposure to rising
utilities cost given that most of the cost is passed through to the tenants. We continue to hold FLCT at
a Neutral (3) Issuer Profile. (Company, OCBC)
Page 4OCBC TREASURY RESEARCH
Asian Credit Daily
Credit Headlines
Macquarie Group Limited (“MQG”) | Issuer Profile: Neutral (3):
▪ MQG announced its FY2022 results for the year ended 31 March 2022. Overall operating results are
strong with net profit after tax up 56% y/y to AUD4.7bn while 2HFY2022 reported profit of AUD2.7bn
is up 30% h/h and up 31% y/y. Overall net operating income rose 36% y/y to AUD17.3bn on broad-
based business momentum and positive asset performance and this more than offset the 22% y/y
rise in operating expenses from business growth, technology investment and higher staff numbers.
▪ Performance of markets facing businesses (Macquarie Capital (“MC”) and most businesses in
Commodities and Global Markets (“CGM”)) continued to be the main driver of overall performance
with net profit up 92% y/y to AUD5.3bn. However in FY2022, the annuity style businesses (Macquarie
Asset Management (“MAM”), Banking and Financial Services (“BFS”) and certain businesses in CGM)
staged a recovery from the prior year’s downcast performance with net profit up 25% y/y to
AUD4.1bn.
▪ By segment:
o MAM net profit rose 4% y/y to AUD2.15bn reflecting higher base fees, acquisitions and solid
performance in Macquarie Infrastructure Corporation assets.
o BFS net profit rose 30% y/y to AUD1.00bn due to growth in the loan portfolio, funds on platform
and releases in net credit impairments.
o CGM net profit rose 50% y/y to AUD3.91bn from performance in Commodities inventory
management, hedging and trading given the market volatility. This was offset by fair value
adjustments for the derivatives portfolio. Improved Asset Finance contribution was driven by the
partial sale of the UK Meters portfolio.
o A 296% y/y rise in net profit at MC to AUD2.40bn was due to higher fee and commission income
on mergers and acquisitions and debt capital markets activities that compensated for lower equity
capital markets fee income and brokerage income. Per management, investment-related income
rose materially due to asset realisations in the green energy, technology and business services
sectors and in the private credit portfolio.
▪ As at 31 March 2022, assets under management was AUD774.8bn, up 37 per cent y/y. This was due
to the acquisitions of Waddell & Reed, AMP Capital’s public investments business and Central Park
Group as well as other investments.
▪ Although MQG’s CET1 ratio of 11.5% as at 31 March 2022 fell 110bps from 12.6% as at 31 March
2021, it achieved a record capital surplus above APRA’s minimal capital requirements of AUD10.7bn.
On an internationally comparable basis, MQG’s CET1 ratio was 14.6% as at 31 March 2022, down
160bps y/y. MQG’s CET1 ratio is still well above the regulatory minimum CET1 requirement of around
7.0% that includes the 2.5% capital conservation buffer (CCB).
▪ Despite improved performance and businesses positively exposed to operating volatility, MQG’s
outlook remains cautious as risk events have also risen compared to 12 months ago. That said, we
expect performance to remain resilient at the Neutral (3) issuer profile given its business composition
and diversity as well as management’s considered and selective strategy that should position the
group for medium term opportunities. (Company, OCBC)
Page 5OCBC TREASURY RESEARCH
Asian Credit Daily
Credit Headlines
Société Générale (“SocGen”) | Issuer Profile: Neutral (4):
▪ SocGen announced its 1Q2022 results with reported net profit before tax (or operating income) up
13.9% y/y to EUR1.39bn. On an underlying basis (excluding exceptional items and smoothing out of
charges per linearisation of IFRIC 21 as classified by SocGen), operating income of EUR2.40bn was up
27.9% y/y.
▪ Gross operating income performance offset higher net cost of risk which doubled to EUR561mn or
39bps. This comprised EUR313mn for non-performing loan provisions and EUR248mn for performing
loans with ~24% of the higher cost of risk related to SocGen’s Russian activities. Excluding this, the
cost of risk was more normalized at 31bps.
o Of the provisions related to SocGen’s Russian activities, almost 75% are provisions on performing
loans. As previously mentioned by SocGen, its 99.97% owned subsidiary Rosbank PJSC operates
and is managed on standalone basis and it has also announced that it has entered into an
agreement to sell its entire stake in Rosbank and Russian insurance subsidiaries to Interros
Capital, the previous shareholder of Rosbank. Assuming the transaction goes through, SocGen will
be fully exiting the Russian market. The transaction is expected to close in the coming weeks.
o SocGen also indicated that a further EUR218mn in 1Q2022 risk costs are tied to the Russia-
Ukraine conflict through offshore international exposure to Russian counterparties of EUR2.8bn as
at 31 March 2022.
▪ A 30.4% y/y rise in gross operating income to EUR1.95bn was driven by a 16.6% y/y rise in net
banking income or revenues to EUR7.28bn. All business segments reported improved performance
with French Retail Banking up 6.4% y/y from higher net interest income and better financial and
service commissions. International Retail Banking & Financial Services was up 19.3% y/y from strong
growth in Financial Services (higher vehicle leasing) and higher activities including loan outstandings.
Finally, Global Banking & Investor Solutions’ revenues rose 18.1% y/y from both Financing & Advisory
(higher activity in property financing, natural resources, Trade Commodity Finance and
Infrastructure) and Global Markets & Investor Services (higher client activity).
▪ At the same time, operating expenses rose at a slower pace (+12.2% y/y) to EUR5.3bn with most of
the growth due to higher business volumes. Higher contributions to the Single Resolution Fund also
contributed to the rise.
▪ Loan quality appears broadly manageable with the non-performing loan ratio stable q/q at 2.9% as at
31 March 2022. The ratio for doubtful outstandings was at 49%. With the elevated cost of risk
somewhat tied to the impact of the Russia-Ukraine conflict, management appears more downcast
about the operating outlook compared with the release of the FY2021 results with management now
expecting the cost of risk to be between 30-35bps in 2022, up from the previous expectation of
below 30bps.
(Continued on the next page) Page 6OCBC TREASURY RESEARCH
Asian Credit Daily
Credit Headlines
Société Générale (“SocGen”) | Issuer Profile: Neutral (4):
▪ SocGen’s CET1 capital ratio was 12.9% as at 31 March 2022, down 80bps from 13.7% as at 31
December 2021. This was due to risk weighted asset growth from higher activities that offset
earnings and is now around 370bps above its minimum regulatory requirement. Management is
continuing to target the CET1 ratio to remain 200-250bps above the regulatory minimum which was
recently revised up for SocGen to 9.23% for 2022 following completion of the European Central
Bank’s (“ECB”) 2021 Supervisory Review and Evaluation Process (“SREP”). SocGen’s capital position
will be influenced in future periods by an expected ~20bps impact from the sale of Rosbank PJSC and
SocGen’s Russian insurance activities.
▪ SocGen’s performance appears resilient despite current market challenges and continues to progress
certain strategic actions to improve its fundamentals after prior period underperformance,
particularly during the pandemic. We continue to review the numbers but see SocGen’s Neutral (4)
issuer profile as sound in our view. (Company, OCBC)
Page 7OCBC TREASURY RESEARCH
Asian Credit Daily
Key Market Movements
1W chg 1M chg
6-May 6-May 1W chg 1M chg
(bps) (bps)
iTraxx Asiax IG 126 7 22 Brent Crude Spot ($/bbl) 111.51 1.98% 10.33%
iTraxx SovX APAC 34 1 10 Gold Spot ($/oz) 1,872.69 -1.28% -2.74%
iTraxx Japan 68 1 8 CRB 313.87 1.90% 7.07%
iTraxx Australia 96 0 14 GSCI 774.46 2.34% 8.53%
CDX NA IG 84 0 17 VIX 31.2 4.03% 41.18%
CDX NA HY 102 0 -3 CT10 (%) 3.070% 13.65 47.26
iTraxx Eur Main 94 4 18
iTraxx Eur XO 450 20 88 AUD/USD 0.711 0.62% -5.42%
iTraxx Eur Snr Fin 104 3 18 EUR/USD 1.053 -0.18% -3.40%
iTraxx Eur Sub Fin 200 3 35 USD/SGD 1.387 -0.27% -1.97%
iTraxx Sovx WE 6 0 1 AUD/SGD 0.986 -0.90% 3.64%
USD Swap Spread 10Y 7 -1 3 ASX 200 7,188 -3.32% -4.03%
USD Swap Spread 30Y -25 -3 -4 DJIA 32,998 -2.71% -4.34%
US Libor-OIS Spread 16 2 -4 SPX 4,147 -3.28% -7.46%
Euro Libor-OIS Spread 6 0 4 MSCI Asiax 677 -1.36% -6.67%
HSI 20,210 -0.33% -8.47%
China 5Y CDS 81 3 17 STI 3,298 -0.68% -3.65%
Malaysia 5Y CDS 96 4 27 KLCI 1,573 -1.51% -2.00%
Indonesia 5Y CDS 124 3 36 JCI 7,229 -0.65% 3.10%
Thailand 5Y CDS 48 1 8 EU Stoxx 50 3,697 -2.13% -3.35%
Australia 5Y CDS 21 2 6 Source: Bloomberg
Page 8OCBC TREASURY RESEARCH
Asian Credit Daily
New Issues
▪ ENN Energy Holdings Ltd has arranged investor calls commencing 5 May for its proposed USD senior
unsecured green notes offering.
▪ Korea Expressway Corp has arranged investor calls commencing 6 May for its proposed USD senior
unsecured bond offering.
Temporary Suspension
▪ Do note that our official coverage on City Developments Limited and OUE Commercial Trust are
temporarily suspended due to OCBC’s other business.
Page 9OCBC TREASURY RESEARCH Asian Credit Daily This publication is solely for information purposes only and may not be published, circulated, reproduced, or distributed in whole or in part to any other person without our prior written consent. This publication should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities/instruments mentioned herein. Any forecast on the economy, stock market, bond market and economic trends of the markets provided is not necessarily indicative of the future or likely performance of the securities/instruments. Whilst the information contained herein has been compiled from sources believed to be reliable and we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee and we make no representation as to its accuracy or completeness, and you should not act on it without first independently verifying its contents. The securities/instruments mentioned in this publication may not be suitable for investment by all investors. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. This publication may cover a wide range of topics and is not intended to be a comprehensive study or to provide any recommendation or advice on personal investing or financial planning. Accordingly, they should not be relied on or treated as a substitute for specific advice concerning individual situations. Please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation, or particular needs before you make a commitment to purchase the investment product. OCBC and/or its related and affiliated corporations may at any time make markets in the securities/instruments mentioned in this publication and together with their respective directors and officers, may have or take positions in the securities/instruments mentioned in this publication and may be engaged in purchasing or selling the same for themselves or their clients, and may also perform or seek to perform broking and other investment or securities-related services for the corporations whose securities are mentioned in this publication as well as other parties generally. There may be conflicts of interest between Oversea-Chinese Banking Corporation Limited (“OCBC Bank”), Bank of Singapore Limited, OCBC Investment Research Private Limited, OCBC Securities Private Limited or other members of the OCBC Group and any of the persons or entities mentioned in this report of which OCBC Bank and its analyst(s) are not aware due to OCBC Bank’s Chinese Wall arrangement. This report is intended for your sole use and information. By accepting this report, you agree that you shall not share, communicate, distribute, deliver a copy of or otherwise disclose in any way all or any part of this report or any information contained herein (such report, part thereof and information, “Relevant Materials”) to any person or entity (including, without limitation, any overseas office, affiliate, parent entity, subsidiary entity or related entity) (any such person or entity, a “Relevant Entity”) in breach of any law, rule, regulation, guidance or similar. In particular, you agree not to share, communicate, distribute, deliver or otherwise disclose any Relevant Materials to any Relevant Entity that is subject to the Markets in Financial Instruments Directive (2014/65/EU) (“MiFID”) and the EU’s Markets in Financial Instruments Regulation (600/2014) (“MiFIR”) (together referred to as “MiFID II”), or any part thereof, as implemented in any jurisdiction. No member of the OCBC Group shall be liable or responsible for the compliance by you or any Relevant Entity with any law, rule, regulation, guidance or similar (including, without limitation, MiFID II, as implemented in any jurisdiction). Co.Reg.no.:193200032W Page 10
You can also read
