Corporate Bond Ideas – Relative value search April 20, 2020 282

  • We scan the local corporate bond universe on a relative value basis to discover bonds trading relatively cheap.

 

Property Developers: Value in shorter-term bonds

In the high yield property developer space, we see an inversion of the curve where bonds with earlier maturity trading cheaper than bonds that mature later. This may be attributed to weaker price discovery within the space due to low liquidity as issue sizes are small (the prominent bonds listed in figure 2 have issue sizes averaging around S$100mn). As such, price transparency is low and yields are relatively mispriced, making recommendations difficult, however, we see value in the shorter term bonds such as GSHSP 5.15% ‘21s (with a yield to maturity of 10.0%), OHLSP 5.7% ‘22s (with a yield to maturity of 9.87%) and CHIPEN 4.75% ‘21s (with a yield to maturity of 9.11%). We note that the CHIPEN 4.75% ‘21s does not have a Cessation Put clause unlike comparables CHIPEN 4.9% ‘22s and CHIPEN 6% ‘22s.

We view the bonds below with spreads over 1000bps as outliers that we’re unable to give proper consideration due to weak price discovery.

 

Hospitality REIT: FHREIT 2.63% 06July2022 Corp (SGD) & ARTSP 3.88% PERP NC 04September2024 (SGD)

In the hospitality REIT curve, we find the FHREIT 2.63% ‘22s vanilla bond (with a yield to maturity of 3.72%) attractive compared to its peer ARTSP bonds. The bond (307bps spread) offers a 48bps spread pick up over the ARTSP 4.205% ‘22s (259bps spread) maturing 140 days later, and a 12bps spread pick up over the ARTSP 4% ‘24s (294bps spread) with a much longer tenor of 491 days later.

On the ART curve, the ARTSP 3.88% PERP (with an attractive yield to call of 4.96%) looks interesting with a large senior-sub spread of 121bps over its comparable senior ARTSP 4% ‘24s (with a yield to maturity of 3.72%) that matures 166 days earlier.

 

Telecommunications: STSP 2.72% 09March2021 Corp (SGD)

We think the ST curve is largely trading tight and prefer the STSP 2.72% ‘21s which is paying 2.40% YTC with a short maturity date in Sep 2021. It trades attractively to the ST curve, offering a 109bps spread pickup to the comparable STSP 4.5% ‘21s USD (1.09% YTM and 42bps spread).

 

Commercial REIT: KREITS 3.275% 04August2024 Corp (SGD)

We like KREITS 3.275% ‘24s (with 3.79% YTM) to comparable bonds in the SUN curve. The KREIT curve shows more steepness compared to the SUN curve despite having a lower gearing profile of 28.5% (vs 36.2% for SUNTEC REIT). The KREITS 3.275% ‘24s offers a 42bps spread pick up to the SUNSP 3.355% ‘25s and 24bps spread pick up to the SUNSP 2.95% ‘27s despite the latter two having maturity dates 305 and 1033 days later.

 

Retail REIT: FCTSP 2.645% 06June2022 Corp (SGD)

We like the FCTSP 2.645% ‘22s (with a 3.48% YTM) to comparable SGREIT bonds. The bond provides a steep spread pick up of 152bps from the SGREIT 3.5% ‘21s (132bps spread) which matures 465 days earlier, and a 14bps spread pick up to SGREIT 3.4% ‘23s (269bps spread) which matures 354 days later. Also, FCT bond’s guarantor Frasers Centrepoint Trust boasts a larger market cap of S$2.4bn, twice larger than SGREIT bond guarantor Starhill Global REIT of S$1.1bn, and a lower gearing profile of 29% compared to SGREIT’s of 36.2%.

 

Banks: UOBSP 3.875% PERP NC 19October2023 (USD)

In the UOB curve, we like the UOBSP 3.875% PERP (USD), offering an attractive 4.93% YTC on an SGD swap basis. It provides a significant spread pick up of 181bps to the UOBSP 3.58% PERP (256bps spread) callable 1002 days later, and a large subordinated-junior spread of 150bps over its comparable subordinated UOBSP 3.75% ‘29s (248bps spread) callable 179 days later.

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Timothy Ang
Research Analyst
Phillip Securities Research

Timothy covers credit analysis of local and foreign bonds. Previously an equity dealer, he handled equity trade execution and portfolio management. He has presented seminars for organisations such as SIAS, SPH and IRAS, commentated live market updates for 93.8FM, and authored investment articles for the Business Times newspaper. He graduated with a Bachelor of Commerce in Accounting & Finance from the University of Western Australia.

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