汇丰银行-中国-信贷策略-中国产业：把小麦从谷壳中分离-2019.7.5-33页.pdf

Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:The Hongkong and Shanghai Banking Corporation Limited View HSBC Global Research at:https:/ THIS CONTENT MAY NOT BE DISTRIBUTED TO THE PEOPLES REPUBLIC OF CHINA(THE PRC)(EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAO)After a painful 2018 highlighted by defaults and sharp price corrections,the sector has split into different layers of quality As value emerges,reduced supply is another reason to revisit the sector,particularly in the yield range of 7-9%Bullish on HY oil,neutral on HY consumer;buy trading call on CARINC22 Navigating the minefield To many,it might be an easy call to underweight China high-yield(HY)industrials on a sector basis,citing the high default rate,weak financing capability versus property counterparts,and depressed margins stemming from fierce competition.The weak trading liquidity often makes things worse its not uncommon to see a large intraday swing even on days with limited relevant news.However,its unfair to judge every issuer on this basis.Some names in this report display qualities traditionally favoured by fixed income investors,such as fast growth(Health&Happiness H&H),clear deleveraging efforts(West China Cement),valuable fixed assets(Golden Eagle),and industry leadership(Car Inc).We think some of these qualities are underappreciated as a result of the defaults in the sector.The reduced supply is another reason to revisit the sector as value emerges,which can be a good reason to diversify away from HY property given the recent noise in that sector.Sorting the wheat from the chaff We define China HY industrials as all China HY issuers apart from property developers,local government financing vehicles(LGFVs),and Macau gaming operators.There are around 70 HY industrial issuers in the market with cUSD34.5bn in bonds outstanding less than a third of the size of China HY property market.Due to the material heterogeneity across many of the industrial sub-sectors,we take a bottom-up approach on a sub-sectoral and name basis rather than a top-down approach on the entire industrial sector.In this report,we focus on names that:1)are listed and rated;2)are transparent in terms of corporate communications and disclosures;3)have healthy corporate governance;and 4)have manageable near-term liquidity risk balanced by available financing channels.Bullish on HY oil,neutral on HY consumer,buy CARINC22 We are bullish on the HY oil sector on the back of the favourable supply-demand dynamics,which should create a sweet spot for the HY oil issuers.We have a neutral view on the HY consumer sector due to the still frail growth of China retail sales,in addition to expensive valuations.On a name basis,we reiterate our buy trading call on CARINC22.We initiate coverage of Anton Oilfield Services,H&H and Gome.With this report,Reks Ng also assumes primary credit coverage of Golden Eagle,Maoye and West China Cement.5 July 2019 Reks Ng Analyst,Corporates The Hongkong and Shanghai Banking Corporation Limited .hk+852 3941 7066 Keith Chan Head of Corporate Credit Research,Asia Pacific The Hongkong and Shanghai Banking Corporation Limited .hk+852 2822 4522 China Industrial HY Fixed Income Credit China Sorting the wheat from the chaff Fixed Income Credit 5 July 2019 2 70 HY industrial issuers,USD34.5bn bonds outstanding We define China HY industrials as all China HY issuers excluding property developers,LGFVs,and Macau gaming operators.There are around 70 HY industrial issuers with cUSD34.5bn in bonds outstanding in this market.Its less than one-third of China HY property market(USD125bn).Of the issuers,half are listed and around 30%do not have international ratings,reflecting the generally low level of transparency and financing capabilities of industrial issuers in China.1.China HY industrial issuance(yearly)2.China HY industrial issuance(quarterly)Source:Bloomberg,HSBC Source:Bloomberg,HSBC It can be easy to step on the landmines Annual HY industrial issuance peaked during the 2017 boom at USD16bn,almost half the level in the HY property space.The divergence between the two increased in 2018 as market turned sour.Industrial issuance was cut by half to USD8.8bn but HY property issuance rose to a record high of USD37.7bn,up 12%y-o-y.A slew of debut industrial issuers tapped the offshore dollar market in 4Q17-1Q18 before Asia credits finished the great tightening in early 2018.A good proportion of them are now trading in the 70s(e.g.Yihua,Zhongrong International and Shandong Sanxing),while others defaulted(e.g.China Singyes,Gangtai).These“landmines”prompted greater investor scrutiny across the sector,from debut issuers and extended to the fundamentally stronger credits.Coupled with the macro deleveraging in China and the tightened onshore liquidity last year,even liquid benchmark HY industrial bonds have suffered from large price swings on negative news flow such as a cancellation of onshore bond issuance.-2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,00020152016201720181H19Yearly gross issuance(USDmn)-1,000 2,000 3,000 4,000 5,000 6,0001Q15 4Q15 3Q16 2Q17 1Q18 4Q18Quarterly gross issuance(USDmn)Navigating the minefield China HY industrial sector is not warmly welcoming new joiners;issuance was only 16%of that of China HY property sector in 1H19 The defaults and sharp price corrections in 2018 mean that the sector has segmented into different layers of quality The limited supply is another reason to revisit the sector as value emerges 3 Fixed Income Credit 5 July 2019 3.HY industrial is not a sector that welcomes new issuance 4.USD6.5bn issuance in 1H19,dominated by the university sector Source:Bloomberg,HSBC Source:Bloomberg,HSBC The market is already differentiating between the weak and the strong Its true that HY industrials face fundamental weakness on a sector basis.However,it might be unfair to apply the same tag to everyone under this umbrella.Indeed,some names in this report are displaying qualities traditionally favoured by fixed income investors,such as fast growth(H&H),clear deleveraging efforts(West China Cement),valuable fixed assets(Golden Eagle),and industry leadership(Car Inc).Some of these qualities are underappreciated to various degrees influenced by the previous defaults in the sector.From a bond supply perspective,shrinking issuance also provides technical support in terms of bond prices.In 1H19,gross issuance was USD6.4bn,accounting for only 16%of China HY property issuance in the same period.Most came from repeated issuers rather than debut issues(USD900m).Its fair to say the market is already differentiating between the stronger credits which can still repeatedly issue and the weaker ones which are scarcely traded after initial pricing.Premium versus the China HY property For reference,we now compare the performance of the China HY industrial and property sectors.For each,we have compiled a yield index comprising 15 benchmark issues across the BB and B space,with bonds maturing from 20 to 23(see Chart 5).The current industrial premium over property is 69bp,versus an average of 11bp over the past 1.5 years.It has come down from the high of 155bp at the start of 2019 when discussions about interest rate hikes,geopolitical tensions and a global growth slowdown were dominating the headlines.The first factor is no longer an issue following the coordinated easing by global central banks,while the latter two are still casting a shadow over the market,maybe even more than six months ago.Against this macro backdrop,we think the industrial-property premium is likely to exist for the foreseeable future.At the same time,we note the recent round of tightening with regards to Chinese regulators curbing developers fund raising plans in the onshore market(see China property HY:Dj vu,5 June)so this story is not black and white.Importantly,the absolute level of the premium is arbitrary in nature and highly dependent on the index substituents.We should still appreciate the difference in premiums of individual bonds,considering the various sub-sectors within the entire HY industrial sector.-10,000 20,000 30,000 40,00020152016201720181H19Gross issance(USDmn)Chian HY property issuanceChina HY industrial issuanceAutoConglomerateConsumerEnergyHealthcareMetals and miningTMTUniversity Fixed Income Credit 5 July 2019 4 5.Some premiums over the property counterparts Source:Bloomberg,HSBC Sorting the wheat from the chaff Here we again stress the importance of credit selection.In this report,we focus on names that:1)are listed and rated;2)are transparent in terms of corporate communications and disclosures;3)have healthy corporate governance;and 4)have manageable near-term liquidity risk balanced by available financing channels.-100-500501001502002504.005.006.007.008.009.0010.0011.0012.00Jan-18Mar-18May-18Jul-18Sep-18Nov-18Jan-19Mar-19May-19DifferenceYield(%)DiffChina HY industrialChina HY property 6.Bullish on HY oil sector;neutral on HY consumer sector;buy CARINC22 Source:Bloomberg,HSBC ANTOIL 9.75 20BJEAHM 6.5 22BTSDF 7.25 21CARINC 8.875 22CARINC 6 21CARINC 6.125 20CHGRAU 7.9 20CHIOIL 4.625 22CHIWIN 7.9 21CHMOLY 5.48 22CWAHK 5.25 22EHICAR 5.875 22FOUIHK 6.25 20GCLNE 7.1 21GERGHK 4.625 23GOME 5 20HILOHO 7.25 20HKJHCC 7.875 21HKJHCC 7.45 22HKJHCC 7.5 22HKJHCC 4.7 21HKJHCC 5.35 23HKJHCC 4.575 20MAOIH 13.25 20MEONHE 7.75 21RSMACA 3.375 22SDGFIN 5.3 PERPSNAGRP 7.5 21TAIHUA 6.8 21THSCPA 6.95 22THSCPA 7.9 21THSCPA 7.95 21THSCPA 4.3 19TSIGTF 5.375 21TSINGH 4.75 21TSINGH 5.375 23TSINGH 6 20TSSTEE 4.25 20VEYONG 7.5 21VNET 7.875 21VNET 7 20YGCZCH 6 22YGCZCH 4.75 20YINGDZ 6.25 23YZCOAL 6 21YZCOAL 5.75 PERPZHJMIN 5.5 22ZOOMLI 6.125 224.05.06.07.08.09.010.00.000.501.001.502.002.503.003.50Yield(%)Duration(Yr)5 Fixed Income Credit 5 July 2019 Retail sales growth hit a multi-year low in April 2019 While spending in the business sector has been generally weak,consumption has provided grounds for short-term optimism based on the latest retail sales surprises from both China and the US.For example,Chinas retail sales growth accelerated to 8.6%y-o-y in May,beating estimates on the back of extended Labour Day holidays and the resilient housing market.However,from a broader perspective,5M19(accumulated)retail sales growth was only 0.1%higher than in 4M19,when growth was the lowest since 2003.As shown in Figure 7,the deceleration in growth in retail sales is a decade-long trend.In recent years,e-commerce is the biggest challenge to traditional retailers,currently accounting for 18.9%of total retail sales of physical goods.At its peak in 3Q17,e-commerce recorded 40%y-o-y growth.Although this has started to slow,online retail sales still registered 18.2%y-o-y growth in 5M19,outpacing offline sales growth of 5.3%y-o-y.These trends underscore the cross-currents facing issuers in the HY consumer sector.7.China retail sales growth continues to slide Source:National Bureau of Statistics of China,Bloomberg,HSBC 5.07.09.011.013.015.017.019.021.0Sep-10Jan-11May-11Sep-11Jan-12May-12Sep-12Jan-13May-13Sep-13Jan-14May-14Sep-14Jan-15May-15Sep-15Jan-16May-16Sep-16Jan-17May-17Sep-17Jan-18May-18Sep-18Jan-19May-19China retail sales YTD acc(yoy%)HY Consumer:Holding its ground?Same store sales growth largely flat y-t-d,echoing the decline in China retail sales growth It might be too early to conclude that issuers are already out of the woods despite the various initiatives put in place We have a neutral stance on HY consumer sector due to the still frail growth of China retail sales and expensive valuations Fixed Income Credit 5 July 2019 6 Low-to-mid single-digit growth y-t-d for our issuers consumer products There has been a big difference in the performance of different product categories so far this year.Auto sales are the weakest,recording-2.0%y-o-y growth in 5M19,followed by jewellery at 2.7%y-o-y.However,besides these“big ticket”discretionary items,the overall sales of consumer staples remained healthy on a y-o-y basis daily commodities(+14.5%),medicines(+11.0%),and grain&oil(+10.5%).For the HY consumer issuers,the more relevant product categories recorded low-to-mid single-digit growth in 5M19,including garments and footwear(+2.6%),jewellery(+2.7%)and household appliances(+6.4%);the best performer was cosmetics(+11.3%).This might explain the lukewarm to disappointing single-store sales growth(SSSG)reported by Maoye(FY18:+0.1%),Golden Eagle(FY18:flattish)and Gome(1Q19:-4.75%).8.Cosmetics sales outperformed;garments,jewellery and household appliances weaker(RMBbn)5M19 y-o-y(%)Total retail sales 16,133 8.1 By distribution channel Online 3,864 18.2 Offline 12,269 5.3 By point of sales City 13,797 8.0 County level or below 2,337 8.9 By product/service categories Services(Catering)1,756 9.3 Goods 14,378 8.0 Gran,oil and foodstuff 576 10.5 Beverage 80 10.1 Tobacco and liquor 160 5.6 Garments,footwear,hats,knitwear 546 2.6 Cosmetics 120 11.3 Gold,silver and jewellery 114 2.7 Daily commodities 230 14.5 Household appliances and AV equipment 345 6.4 Medicines 243 11.0 Cultural and office appliances 116 3.6 Furniture 71 5.1 Communication appliances 176 7.8 Petroleum and related products 799 3.1 Automobile 1,542 -2.0 Building and decoration materials 73 4.2 Source:National Bureau of Statistics of China,Bloomberg,HSBC The way to“New retail”In a challenging retail environment,issuers have been taking a number of steps to fend off online competitors.The strategy shared by Maoye and Golden Eagle is to reposition their department stores into shopping malls.More distinctive services and lifestyle facilities are being provided to offer an enhanced shopping experience that appeals to and engages with customers and offers alternatives to making purchases online.Other than improved traffic and customer loyalty,the success of these initiatives is being reflected in improved rental income,which is more resilient and stable than the traditional sales revenue.In FY18,Maoye and Golden Eagle reported rental revenue of RMB1.0bn and RMB772m,respectively,up 31%and 55%.Although relatively small,we regard this ramp-up in the rental portfolio as a quality increase in recurring income.Auxiliary income streams to complement the revenue mix Another way to counter slowing sales growth is auxiliary income streams such as property sales.We expect Maoye and Golden Eagle to generate property sales of RMB2-3bn and RMB500-800m in FY19,respectively.This has been noted by the rating agencies.Moodys recent upgrade on Maoye cited the accelerated disposal of property inventory which had helped support cash flow generation and deleveraging.From our discussion with the companies,we 7 Fixed Income Credit 5 July 2019 gather that the risk from extensive replenishing of land bank for pure property sales is limited,given the continued focus on the core retailing business.Meanwhile,home appliance spec