OCBC TREASURY RESEARCH - Asian Credit Daily Thursday, May 12, 2022
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OCBC TREASURY RESEARCH Asian Credit Daily Thursday, May 12, 2022 Market Commentary ▪ The SGD SORA curve traded mostly lower yesterday, with shorter tenors trading 4-8bps lower, belly tenors trading 7-9bps lower, and longer tenors trading 6-9bps lower. ▪ There were heavy flows in SGD corporates yesterday, with flows in UBS 4.85%-PERPs, CS 5.625%-PERPs, MAPLSP 3.7%-PERPs and DBSSP 3.98%-PERPs. ▪ UST 10Y yields traded 7bps lower to 2.92% yesterday, extending the downwards move since the start of the trading week as the prospect of stubbornly high inflation drives concerns for a slowdown in the economy. This came following the release of the faster-than-expected increase in inflation by the US Bureau of Labour Statistics last night (Singapore time). Consumer price index (“CPI”) for April increased by 8.3% y/y, which was above Bloomberg median estimates of a 8.1% y/y increase and only slightly below the prior month’s close to 40-year record high 8.5% y/y increase. On a m/m basis, CPI for April also rose more than expected by 0.3% m/m, above Bloomberg median estimates of a 0.2% m/m increase. The increase in inflation for April was primarily driven by the cost of shelter, food, airline fares and new vehicles, while energy and gasoline prices notably fell. Still, excluding food and energy prices, core CPI increased more than expected on both a y/y and m/m basis. Credit Summary: ▪ Commonwealth Bank of Australia (“CBA”) | Issuer Profile: Positive (2): CBA released its 3QFY2022 trading update for the 3 months ended 31 March 2022 with relatively resilient performance. We continue to hold CBA at Positive (2) issuer profile. ▪ Frasers Property Ltd (“FPL”) | Issuer Profile: Neutral (5): FPL reported 1HFY2022 results for the half- year ended 31 March 2022. Going forward, results should remain stable with the industrial & logistics segment which is FPL’s largest segment. We remain comfortable with FPL and continue to maintain its Issuer Profile at Neutral (5). ▪ ScentreGroup (“SCG”)| Issuer Profile: Positive (2): SCG announced its operational update as at 31 March 2022. The group reported higher customer footfall (12% increase) as compared to 2021 or 16% higher if CBD centres are excluded. Approximately 80% of speciality leases managed by the Group are inflation linked, with average rent escalations of CPI +2% while the remaining 20% are on fixed annual rent escalation with an average of 4% increase. We continue to hold SCG at a Positive (2) Issuer Profile.
OCBC TREASURY RESEARCH
Asian Credit Daily
Credit Headlines
Commonwealth Bank of Australia (“CBA”) | Issuer Profile: Positive (2):
▪ CBA released its 3QFY2022 trading update for the 3 months ended 31 March 2022 with relatively
resilient performance as solid operating conditions and improved cost performance offset industry
pressures. Reported cash net profit after tax from continuing operations of ~AUD2.4bn was flat in
3QFY2022 compared to the 1HFY2022 quarterly average and down 2% y/y.
▪ Lending and deposit growth in CBA’s core domestic businesses partially offset lower net interest
margins from competition, loan mix changes and higher swap rates with overall net interest income
down 2% against the 1HFY2022 quarterly average. At the same time, non-interest income rose 2%
against the 1HFY2022 quarterly average on higher treasury earnings. Combined, operating income
was down 1% against the 1HFY2022 quarterly average (AUD6.1bn).
▪ Operating expense performance was sound with overall operating expenses down 2% against the
1HFY2022 quarterly average due to a 53% fall in remediation costs and a 1% fall in other operating
expenses from a shorter quarter as well as higher annual leave usage that compensated for higher
staffing levels. The higher fall in operating expenses against the fall in operating income therefore led
to flat operating performance in 3QFY2022 against the 1HFY2022 quarterly average and a 2%
improvement y/y to ~AUD3.3bn.
▪ CBA registered a loan impairment benefit of AUD48mn in 3QFY2022 evidencing a constructive
operating environment. Supporting this was an improved troublesome and impaired assets to total
committed exposures ratio of 0.51% as at 31 March 2022 (0.53% as at 31 December 2021 and 0.67%
as at 31 March 2021) as a 11.4% q/q fall in gross impaired assets more than compensated for a 6.1%
q/q rise in Corporate troublesome assets. 90+ days consumer arrears ratios rose marginally for
personal loans and credit cards but fell for home loans.
▪ Given the previously mentioned loans growth (-5bps) as well as higher swap rates impacting Interest
Rate Risk in the Banking Book (-38bps) and AUD3.0bn in interim dividend payments (-61bps), CBA’s
CET1 ratio of 11.1% was down 70bps q/q as at 31 March 2022. Other influences included higher
market risk due to the rise in commodity prices, interest rates and CBA’s FX portfolio and the positive
impact of earnings (+46bps). The reported ratio does not include an expected 44bps impact from
previously announced divestments of Bank of Hangzhou Co Ltd and CommInsure General Insurance
although this will likely be offset by an on-market share buy-back of AUD2bn that was previously
announced in February 2022 and will be undertaken for the remainder of 2022.
▪ We continue to hold CBA at Positive (2) issuer profile. (Company, OCBC)
Page 2OCBC TREASURY RESEARCH
Asian Credit Daily
Credit Headlines
Frasers Property Ltd (“FPL”) | Issuer Profile: Neutral (5):
▪ FPL reported 1HFY2022 results for the half-year ended 31 March 2022. Revenue rose 7.5% y/y to
SGD1.68bn, with reported PBIT before gain on change in use of properties held for sale, fair value
change, tax and exceptional changes rising 9.9% y/y to SGD526.1mn. While results look decent, the
underlying performances diverge.
o The improvement is mainly due to recovery in hospitality business segment which posted
+SGD28mn reported PBIT (1HFY2021: -SGD38mn) due to higher room rates mainly from UK
properties. Meanwhile, Thailand & Vietnam (+47% y/y to SGD99mn) saw significant
improvements in reported PBIT due to residential settlements. Excluding gain on change in use
of portfolio, the Industrial segment remains as the single largest contributor with reported PBIT
that rose 2% y/y to SGD207mn.
o The underperformers included Australia (-62% y/y to SGD9mn) with lower level of residential
settlements due to timing of completion of development projects and Singapore (-13% y/y to
SGD169mn) mainly due to absence of non-recurring acquisition fees arising from acquisition of
AsiaRetail Fund Limited by Frasers Centrepoint Trust. That said, settlements should increase with
SGD2.4bn pre-sold revenue as of 1HFY2022 (FY2021: SGD1.8bn), of which Australia is the
biggest contributor with SGD1.4bn unrecognized revenue.
▪ According to FPL, over SGD500mn has been utilized out of SGD700mn raised from the rights issue in
Apr 2021. We understand this is mainly used towards the industrial and logistics development
pipeline, which has a total gross development value of SGD1.2bn to be delivered in the next 18
months, of which SGD811mn are Australia assets under development.
▪ Out of SGD34.3bn in property assets, as of 1HFY2022, industrial & logistics comprise 32% of the total
portfolio, followed by retail (21%), commercial & business parks (20%), hospitality (14%) and
residential (13%).
▪ Going forward, results should remain stable with the industrial & logistics segment which is FPL’s
largest segment maintaining 100% occupancy in Australia (with SGD5.4bn AUM) and 1.8 ppts h/h
higher occupancy of 97.8% in Europe (with SGD3.1bn AUM), while rental growth is expected to
remain healthy in both Europe and Australia due to strong demand and limited supply. Hospitality
segment is also expected to see a larger recovery with further return of international travel demand
as borders further re-open. The Singapore suburban retail portfolio has meanwhile demonstrated
resilience and is expected to see higher shopper traffic and tenant sales from the reopening of
Singapore’s economy and lifting of safe management restrictions.
▪ Net gearing fell h/h to 74% (FY2021: 79%) due to divestment of stake in Cross Street Exchange,
though reported net interest cover fell to 3x (FY2021: 4x). We remain comfortable with FPL and
continue to maintain its Issuer Profile at Neutral (5). (Company, OCBC)
Page 3OCBC TREASURY RESEARCH
Asian Credit Daily
Credit Headlines
ScentreGroup (“SCG”)| Issuer Profile: Positive (2):
▪ SCG announced its operational update as at 31 March 2022. The group reported higher customer
footfall (12% increase) as compared to 2021 or 16% higher if CBD centres are excluded. Per
management, the Group continues to see demand from existing and new businesses who are looking
to expand their physical presence with the completion of 536 lease deals of which 237 are new
merchants.
▪ In-store sales (including speciality sales) exceeded pre-pandemic levels. Total sales figure was 11.2%
higher in March 2022 compared to 2019 and q/q it was 7.1% higher. Occupancy rate remained at
98.7% q/q as at 31 March 2022.
▪ Approximately 80% of speciality leases managed by the Group are inflation linked with average rent
escalations of CPI +2% while the remaining 20% are on fixed annual rent escalation with an average
of 4% increase. Per management, speciality leases contribute more than 90% to its net operating
income.
▪ For SCG’s debt profile, the Group has restructured its interest rate hedging profile for 2023 and 2024.
It increased the hedge portion by 15% and 10% to approximately 65% and 50% respectively for 2023
and 2024.
▪ We continue to hold SCG at a Positive (2) Issuer Profile. (Company, OCBC)
Page 4OCBC TREASURY RESEARCH
Asian Credit Daily
Key Market Movements
1W chg 1M chg
12-May 12-May 1W chg 1M chg
(bps) (bps)
iTraxx Asiax IG 129 2 20 Brent Crude Spot ($/bbl) 106.96 -3.55% 2.22%
iTraxx SovX APAC 36 2 10 Gold Spot ($/oz) 1,858.49 -1.00% -5.51%
iTraxx Japan 75 7 14 CRB 304.89 -2.98% 0.67%
iTraxx Australia 105 9 18 GSCI 745.66 -3.33% 1.59%
CDX NA IG 88 4 15 VIX 32.56 28.09% 34.21%
CDX NA HY 100 -1 -3 CT10 (%) 2.895% -14.16 17.36
iTraxx Eur Main 93 0 16
iTraxx Eur XO 450 0 79 AUD/USD 0.694 -2.38% -6.88%
iTraxx Eur Snr Fin 103 -1 16 EUR/USD 1.053 -0.15% -2.79%
iTraxx Eur Sub Fin 198 -2 33 USD/SGD 1.390 -0.37% -1.85%
iTraxx Sovx WE 6 1 2 AUD/SGD 0.965 1.97% 5.37%
USD Swap Spread 10Y 9 2 4 ASX 200 7,014 -4.77% -5.91%
USD Swap Spread 30Y -25 0 -7 DJIA 31,834 -6.54% -6.97%
US Libor-OIS Spread 11 -4 -9 SPX 3,935 -8.49% -10.51%
Euro Libor-OIS Spread 7 0 2 MSCI Asiax 644 -4.88% -7.90%
HSI 19,563 -6.26% -8.24%
China 5Y CDS 82 1 13 STI 3,211 -3.96% -3.58%
Malaysia 5Y CDS 99 3 23 KLCI 1,557 -1.61% -2.48%
Indonesia 5Y CDS 129 4 30 JCI 6,816 -5.75% -5.52%
Thailand 5Y CDS 51 3 8 EU Stoxx 50 3,648 -2.07% -4.79%
Australia 5Y CDS 24 1 5 Source: Bloomberg
Page 5OCBC TREASURY RESEARCH
Asian Credit Daily
New Issues
▪ ENN Energy Holdings Ltd priced a USD550mn 5-year senior unsecured green bond at T+180bps,
tightening from an IPT of T+210bps area.
▪ Korea Expressway Corp priced a USD500mn 3-year senior unsecured bond at T+85bps, tightening
from an IPT of T+120bps area.
▪ DFZQ priced a USD300mn 3-year senior unsecured bond at T+76bps, tightening from an IPT of
T+120bps area.
▪ Industrial Bank Co Ltd/Hong Kong priced a USD650mn 3-year green bond at T+52bps, tightening from
an IPT of T+95bps area.
Date Issuer Size Tenor Pricing
12-May-22 ENN Energy Holdings Ltd USD550mn 5-year T+180bps
12-May-22 Korea Expressway Corp USD500mn 3-year T+85bps
12-May-22 DFZQ USD300mn 3-year T+76bps
12-May-22 Industrial Bank Co Ltd/Hong Kong USD650mn 3-year T+52bps
Source: OCBC, Bloomberg
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 6OCBC 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 7
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