Fixed Income Daily Market Update

CMBI Credit Commentary Fixed Income Daily Market Update固定收益部市场日报 We saw better buying on JP long-end insurance subs and betterselling onYankee bonds this morning, but their prices remained stable. SOFTBK 61-65edged 0.7pt higher.VNKRLE 27-29 recovered 0.3-0.4pt.GLPCHI29/SMCGL 8.375 Perp lost 0.6pt. Glenn Ko, CFA高志和(852) 3657 6235glennko@cmbi.com.hk ZHOSHK:A surprise but not too alarming profit warning. ZHOSHK 28 down2.7ptsyesterday and unchanged this morning. See below. Cyrena Ng, CPA吳蒨瑩(852) 3900 0801cyrenang@cmbi.com.hk China Economy:Off to a good start. CMBI expects a 50bp cut in RRR anda 10bp cut in LPR by the end of 2Q26; full-year GDP growth rate may declinefrom 5% in 2025 to 4.6% in 2026. See comments from CMBI economicresearch below. Yujing Zhang张钰婧(852)3900 0830zhangyujing@cmbi.com.hk Trading desk comments交易台市场观点 Yesterday,ZHOSHK 28 dropped by 2.7pts amid the profit-warning headline.There was one-way selling from onshore and offshore AM accounts, thoughdesks noted some bottom-fishing bids from onshore AMs. See our commentsbelow.WESCHI28-29 were down by 0.2-0.4pt.See our commentsyesterday. In HK, the NWDEVL/VDNWDL complex lost 0.1-0.7pt. HongKong's Town PlanningBoard rejected NWD's K11 Artus hotel conversion toflats. FAEACO 12.814 Perp/LIFUNGs were 0.2-0.6pt lower. LASUDE 26 wasanother 0.1pt lower. See our commentslast Friday. On the other hand,HYSANs were unchanged to 0.4pt higher. In Chinese properties, VNKRLE27’ and 29’ lost 1.8-1.9pts. LNGFOR 27-32/FUTLAN 28/FTLNHD 27-29leaked 0.2-0.7pt. Seazen’s CEO Lv Xiaoping resigned yesterday (16Mar’26),we view the resignation to have immaterial impact on Seazen given Wangfamily’s 63% ownership and the family’s heavy involvement in the dailyoperations of the company. In KR space, the POHANG curve widened 4-6bps. S&P downgraded Posco’s ratingsby one notch to BBB+ from A-andaffirmed the stable outlook, because of Posco’s high capex and subduedoperating conditions. NHSECS/HANFGI and HYNMTR widened 3-5bps. InJP space, spreads marked 2-5bps wider across both fixed and floatingtranches. Japanese and Yankee AT1s and insurance subs were 0.3pt loweramid continuous yet not too aggressive selling on duration from AMs, propdesks and PBs. In SE Asian space, VLLPM 27 edged 1.4pts higher. ACPM4.85 Perp/GARUDA 31 lost 0.9-1.1pts. Ayala Corp’s FY25 decreased by9.3% to PHP162.6bn (cUSD2.7bn). GLPSP Perps were 0.2-0.9pt weaker. Inthe Middle East, long-end KSA/ARAMCO lost up to 0.5pt amid better-sellingfrom PBs and HFs. We saw additional selling on bank front-end papers andFRNs(FABUH/DIBUH).LGFV bonds remained immune from macrovolatilities as flows continued to be two-way skewed to better buying inhigher-yielding papers. Last Trading Day’s Top Movers Marco News Recap宏观新闻回顾 Macro–S&P (+1.01%), Dow (+0.83%)and Nasdaq (+1.22%) were higher on Monday. UST yield was lower onMonday. 2/5/10/30 year yield was at 3.68%/3.80%/4.23%/4.86%. Desk Analyst Comments分析员市场观点 ZHOSHK:A surprise but not too alarming profit warning We were surprised by Zhongsheng’s profit warning on loss attributable to shareholders of no more thanRMB2bn. According to Jardine Matheson’s FY25 results announced on 11 Mar’25, its share of Zhongsheng’sprofit is USD53mn, down 17% yoy.This should be translated into a profit attributable to shareholders atZhongsheng of cRMB1.8bn based on Jardine Matheson’s 21% ownership of Zhongsheng. We note the furtherdeterioration of new and used car sales, as well as the no more than 50% decrease in commission fromautomobile financing.Nonetheless, we estimate that its aggregate profit and absorption ratio should still becRMB10bn and c100% in FY25, respectively.Indeed, its profit/loss attributable to shareholders would bepositive should the non-cash impairment of goodwill and intangible assets of no more than RMB2.5bn beexcluded.We take additional comfort that its near-term refinancing risk and leverage is low.ZHOSHK 5.9801/30/28, Zhongsheng’s only o/s USD bond, was down 2.7pts yesterday and unchanged this morning. At 97.3,ZHOSHK 5.98 01/30/28 is trading at YTM of 7.6%. We believethat the bond offers attractive risk-return profilewithin Chinese IG space even Zhongsheng’s mid-BBB rating could be under pressure with the weaker FY25results. Hence, we maintain buy on ZHOSHK 28. We do not consider the profit warning is too alarming. Based on the few figures from Jardine Matheson’s FY25results, we believe that Zhonsheng’s FYE25 net assets (even after adjusted for expected loss attributable toshareholders) should be higher than those of FYE25 and current financial liabilities in FYE25 should be lowerthan those of FYE24 despite lower cash balance.As per Zhongsheng, its new automobile sales volumeincreased slightly yoy from new energy brand, while gross profit from after-sales service showed steady growth.Its operating cash flowsalso increased. We are not too concerned on Zhongsheng’s near-term liquidity profile. Over the past few years, Zhongshenghas been disciplined in expa