高产出制造业与一般产业及服务业

1、HIGHYIELDMANUF AC TURING/GENERALINDUSTRIALS&SERVICES -Aerospace/Defense-Manufacturing/General Industrials-ServicesApril 2019Yilma Abebe AC(1-212) 270-3265 HYPERLINK mailto:Yilma.Abebe Yilma.AbebeJ.P. Morgan Securities LLCHayden B. Harrow(1-212) 270-6797 HYPERLINK mailto:Hayden.Harrow H HYPERLINK mai

2、lto:ayden.Harrow ayden.HarrowJ.P. Morgan Securities LLCSee the end pages of this presentation for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a

3、conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.H I G H Y I E L D M A N U F A C T U R I N G / G E N E R A L I N D U S T R I A L S & S E R V I C E SAgendaExecutive Summary1Manufact

4、uring/General Industrials2Aerospace/Defense6Services10Relative Value17Company Profiles26Disclosures51PageExecutive SummarySector RatingsAerospace & Defense: UnderweightManufacturing/General Industrials: UnderweightServices: NeutralCautious view primarily based on valuationGiven diverse end market dr

5、ivers we think credit selection is much more important than sector weightingYield vs. RatingDomestic HYHY IndustrialsHY ServicesBB5.02%4.88%5.00%Split BB5.54%5.17%5.42%B6.97%6.20%6.67%Split B8.90%8.06%7.40%Split CCC & CCC11.59%10.70%15.27%E X E C U T I V E S U M M A R YSource: J.P. MorganAs of 3/29/

6、191H I G H Y I E L D M A N U F A C T U R I N G / G E N E R A L I N D U S T R I A L S & S E R V I C E SAgendaExecutive Summary1Manufacturing/General Industrials2Aerospace/Defense6Services10Relative Value17Company Profiles26Disclosures51PageManufacturing/General Industrials OverviewWe rate the Manufac

7、turing/General Industrials sector UnderweightAerospace & Defense subsector: UnderweightManufacturing subsector: UnderweightThe HY Industrials Index trades at 6.08% YTW, about 75bps inside of the JPM Domestic HY Index, as of March 29, 2019We think the risk/reward trade-off is skewed to the downside w

8、ith valuations materially tighter than market averages (relative to both cyclicals & overall HY) for this groupJPM HY Industrials Index vs. JPM HY Index STWYield vs. RatingDomestic HYHY IndustrialsBB5.02%4.88%Split BB5.54%5.17%B6.97%6.20%Split B8.90%8.06%Split CCC & CCC11.59%10.70%Source: J.P. Morga

9、n, levels as of 3/29/19600550500450400350300M A N U F A C T U R I N G / G E N E R A L I N D U S T R I A L SJ.P. Morgan HY IndexJ.P. Morgan HY Industrials IndexSource for all: J.P. Morgan HY Strategy Team, as of 3/29/192Manufacturing/General Industrials Overview (contd)Drivers that we think will impa

10、ct credit performance include:Non-residential spendEmerging marketsOil & gas recoveryCommodity pricingIndustrial productionGlobal tradeOver the last three years the Industrials have traded at or modestly inside the overall HY marketM A N U F A C T U R I N G / G E N E R A L I N D U S T R I A L SOur U

11、nderweight recommendation is a reflection of our expectation that in 2019 the sector will widen and trade closer to the three year average and we see fair value at about HY levelsOne source of upside for credit performance could be a possible infrastructure spending bill3Manufacturing subsector: Und

12、erweightWe rate the Manufacturing subsector Underweight even in the context of a stable earnings outlookSimilar to our view of the overall industrials sector, at current valuations risk/reward is skewed to the downside if growth forecasts are even slightly below expectationsMacroeconomic indicators

13、for manufacturing have improved and forward looking indicators show growth in 20193Q184Q18Quarterly SAAR q/q1Q192Q193Q194Q191Q202017Annual y/y20182019EReal U.S. GDP3.4%2.2%1.5%2.3%1.8%1.8%1.8%2.2%2.9%2.3%Industrial Production3.6%1.5%-0.6%1.7%1.5%1.4%1.4%2.0%2.3%1.3%Source: J.P . M organ Economic Res

14、earch, M ichael Fero liISM Manufacturing (Left Axis, Solid) & Industrial Production (Right Axis, Dotted)M A N U F A C T U R I N G / G E N E R A L I N D U S T R I A L S62110601085856106541045210250481004698ISM Manufacturing PMI Index, SAU.S. Industrial Production Index, SASource: Institute for Supply

15、 Management, Federal Reserve, Bloomberg4Non-residential constructionMost companies that have exposure to the non-residential construction market expect growth again in 2019Recent data from residential construction markets, a good leading indicator for non-residential construction activity, began to

16、soften in 2018There is some level of correlation between the res/non-res, with non-residential activity typically lagging residential activity by approx. 2-3 yearsWhile we have yet to see activity in non-residential construction markets follow the recent softness observed in housing, were concerned

17、we may begin to see lower growth of non-residential construction in late-2019/2020We are forecasting low-to-mid single digit increases in non-residential construction as a base case for 2019 Total Nonresidential and Residential Construction Spend(2005-Present, $mn, saar)M A N U F A C T U R I N G / G

18、 E N E R A L I N D U S T R I A L S800,000600,000400,000200,000Total Construction Spending: NonresidentialTotal Construction Spending: ResidentialSource: U.S. Census Bureau5H I G H Y I E L D M A N U F A C T U R I N G / G E N E R A L I N D U S T R I A L S & S E R V I C E SAgendaExecutive Summary1Manuf

19、acturing/General Industrials2Aerospace/Defense6Services10Relative Value17Company Profiles26Disclosures51PageAerospace & Defense subsector: UnderweightWe rate the A&D subsector Underweight. Fundamentals are stable for most credits but we dont think valuations warrant an Overweight or a Neutral weight

20、ingWhile we think credit risk of most A&D companies is below market averages, we think the sector trades too tight at 165bp inside HY, with fair value 25-50bp inside HYOutperformance can be achieved by owning select credits with above market yields, in our viewGlobal trade disputes could impact perf

21、ormance of this sectorThe impact the 737 MAX grounding may have on the supplier base is difficult to quantifyEnterprise Value Multiple Comps1-Apr-19CompanyTickerMarket CapEVEV / EBITDA2019E2020EAEROSPACE & DEFENSEDefenseCACI InternationalCACI$4,622$5,60610.3x9.6xGeneral Dy namicsGD$49,758$61,21211.3

22、x10.6xHuntington IngallsHII$8,850$9,8939.5x8.8xL-3 CommunicationaLLL$16,761$19,08412.3x11.4xLockheed MartinLMT$86,056$99,44310.8x9.6xNorthrup GrummanNOC$46,587$59,40812.5x11.3xDefense MeanDefense Median11.1x11.1x10.2x10.1xAerospaceBombardierBDRBF$4,909$12,7207.6x5.7xBoeingBA$221,017$226,37112.9x11.9

23、xSpirit AerosystemsSPR$9,896$11,0188.4x7.9xTriumph GroupTGI$989$2,5948.2x7.2xTransDigmTDG$24,565$35,11116.6x15.6xWesco Aircraft HoldingsWAIR$901$1,74210.0 x8.3xAerospace MeanAerospace Median10.6x9.2x9.4x8.1xA E R O S P A C E / D E F E N S ESource: Bloomberg*: Bloomberg median estimatesSelected HY Cr

24、editsCouponYTWSTWYTW DateBBDBCN*7.500%6.48%41912/1/2020BWXT5.375%5.05%2747/15/2023MOGA5.250%4.06%17112/1/2020TDG6.375%6.30%3996/15/2023TGI7.750%8.57%6198/15/2025Source: J.P. Morgan, Bloomberg, levels as of 4/1/19*2024 notes6DefenseOur base case expectation is for a steady increase in defense spendin

25、g over the next several yearsThe Trump administration has prioritized increasing defense spending, but a divided government puts this priority at riskWe think a more defined defense budget could lead to an acceleration of M&A in the defense spaceWhile the overall outlook for defense fundamentals is

26、trending positive we recommend limiting exposure to credits with diverse platforms that stand to benefit from the current administrations prioritiesU.S. Defense Budget, $bnFY15FY16FY17FY18FY19FY20EFY21EFY22EFY23ETotal Base BA$507$537$532$607$617$551$560$710$728Growth-1%6%-1%14%2%-11%2%27%3%Total Sup

27、plemental BA$64$59$82$70$68$165$156$20$20Growth-25%-8%40%-15%-3%143%-5%-87%0%Total BA$571$596$614$676$685$716$716$730$748Growth-4%4%3%10%1%5%0%2%2%Total Outlays$563$565$607$622$653$690$699$706$719Growth-3%1%7%2%5%6%1%1%2%A E R O S P A C E / D E F E N S ESource: Do D, J.P. M o rgan Equity Research Se

28、nior Analyst Seth Seifman7Commercial OEM and Aftermarket Aircraft SuppliersAircraft supply is expected to expand by 12% in 2019, driven by a 12% increase in deliveries by Boeing and an 11% increase in deliveries by Airbus based on estimates by J.P. Morgan Equity Analyst Seth SeifmanThe large backlog

29、s at Boeing and Airbus are likely supportive of steady growth in demand over the next few years for high yield commercial aerospace suppliers in our universe737 MAX challenges create some uncertainty in this forecastWe expect 2019 growth in the mid-to-high single digit range in commercial aftermarke

30、t driven by the significant number of fleet entering major maintenance checksGiven the significant increase in deliveries by Boeing and Airbus over the previous six years, a significant amount of fleet should be entering required major maintenance checks that typically come 5-6 years after delivery

31、TransDigm, a bellwether credit in the aftermarket space, expects FY19 commercial aftermarket revenue growth in the mid to high-single-digit area, better than the FY18 mid-single-digit guidance that produced 9% y/y commercial aftermarket growth for the company in 2018A E R O S P A C E / D E F E N S E

32、Commercial Aircraft Delivery Forecast20102011201220132014201520162017 2018 2019E 2020E 2021E 2022EBoeing462477601648723762748763806901932930912Airbus5105345886266296356887188008889309801061E190/575928562291718222240636457CSeries00000071700000Narrowbody8528859559951,0041,0031,0601,1261,2481,4161,5011

33、,5501,619Widebody195218319341377411401394380413424424411Total1,0471,1031,2741,3361,3811,4141,4611,5201,6281,8291,9251,9742,030y/y change-1.3%5.3%15.5%4.9%3.4%2.4%3.3%4.0%7.1%12.3%5.2%2.5%2.8%Source: J.P. Morgan Equity Research Senior Analyst Seth Seifman estimates, Company data8Business JetsThe busi

34、ness jet market continues to show signs of improvement, a trend we expect to continue in 2019We expect 2019 will be the first period of y/y growth for business jet deliveries since 2014Our equity counterparts are forecasting a 12% increase in deliveries in 2019Business jet deliveries, which have typ

35、ically been correlated to corporate profits, are still down 40% from the peak in 2008We expect the introduction of new platforms including Gulfstreams G500/600 and Bombardiers Global 7500 to pull business jet deliveries safely above 2017 lowsA E R O S P A C E / D E F E N S EInternational markets hav

36、e lagged North America due to weakness in EM partly as a result of slow growth in commodity based economies, however, we expect the EM headwind to taper off as these markets stabilizeBusiness Jet Delivery Forecast2007 2008 2009 20 1020 1120 1220 1320 1420 1520 1620 1720 1820 19E 2020E 202 1EBombardi

37、er226247173150182179180204199163140137152180180Cessna (TXT)388466289178183181139159166178180188210216220Dassault707277956366776655494543505959Embraer3535115144999911911612011710992100110110Gulfstream (GD)1381569499107121139144147128120121146151152Hawker B eechcraft162160987352326Other2223133322929To

38、tal 1,0 191,13 6846 739 686 678 660 689 689 657 625 6 14690 745 750 Gro wth y/y18%11%-26%-13%-7%-1%-3%4%0%-5%-5%-2%12%8%1%So urce: J.P . M organ Equity Research Senior Analyst Seth Seifman estimates, Company data9H I G H Y I E L D M A N U F A C T U R I N G / G E N E R A L I N D U S T R I A L S & S E

39、 R V I C E SAgendaExecutive Summary1Manufacturing/General Industrials2Aerospace/Defense6Services10Relative Value17Company Profiles26Disclosures51PageServices OverviewWe rate the Services sector NeutralThe JPM Services Index is currently trading at 7.32% YTW as of March 29, 2019, about 50bps wider th

40、an the JPM High Yield IndexWith a diverse mix of companies with differing credit fundamentals and end market drivers, we think credit selection is more important than sector weighting in servicesThis said, with valuations at about market averages and stable credit fundamentals, we recommend investor

41、s maintain a Neutral weightingJPM HY Services Index vs. JPM HY Index STWYield vs. RatingDomestic HYHY ServicesBB5.02%5.00%Split BB5.54%5.42%B6.97%6.67%Split B8.90%7.40%Split CCC & CCC11.59%15.27%600550500450400350300Source: J.P. Morgan, levels as of 3/29/19J.P. Morgan HY IndexJ.P. Morgan HY Services

42、 IndexS E R V I C E SSource for all: J.P. Morgan HY Strategy Team, as of 3/29/1910Equipment RentalsCredit fundamentals improved in 2018 for equipment rental companies and our expectation is for similar performance in 2019 Volume and utilization metrics have been healthy for the duration of 2018 with

43、 trends supportive of stability in 2019 amid continuing industry consolidationOur base case expectation is 2019 will show slight growth versus 2018 with better pricing and volume on account of improved industry fundamentalsWe think pricing still has some room for growth, but not necessarily at the r

44、ates seen in 2018Outlook for the non-residential construction market, one of the key drivers of growth for equipment rentals, improved steadily throughout 2018 and our expectations are for modest growth in 2019The AIA Architecture Billings Index, a leading economic indicator for nonresidential const

45、ruction activity, has been stronger in 2018 than it was in 2017, a signal that architectural firms in aggregate are reporting higher activityTotal Nonresidential Construction Spend (2005-Present, $mn, saar)Architecture Billings Index (2014-Present)60800,00055600,000400,00050S E R V I C E S200,00045S

46、ource: U.S. Census Bureau, J.P. MorganSource: American Institute of Architecture, J.P. Morgan11Equipment Rentals Continued Economic Data & Top LineNon-residential construction activity is a key driver of credit performance for rentalsWe think mid-single-digit increases should be the base case view f

47、or 2019Macro drivers are supportive of growth this yearAshtead, HERC, HEES, URI Y/Y Rev (Left Axis, Solid) & AIA Billings (Right Axis, Dotted)45%30%15%0%-15%-30%-45%45%30%15%0%-15%-30%-45%5550454035Revenue Scaled by Mkt Share, y/yAIA Architectural Bilings IndexSource: Company reports, American Insti

48、tute of Architecture , BloombergAshtead, HERC, HEES, URI Y/Y Rev (Solid) & Non-Res Construction Spend Qtrly Avg. Y/Y (Dotted)S E R V I C E SRevenue Scaled by Mkt Share, y/yNon-Res Spend, Qtrly avg, y/ySource: Company reports, U.S. Census Bureau, Bloomberg12Equipment Rentals Continued End Market Expo

49、sureRental companies manufacturing/industrials exposure has been a positive driver for growthOn average we think the rental space generates about half its revenue from industrials/manufacturingMost rentals will include oil/gas in their industrials/manufacturing end market disclosureAshtead - U.S.Uni

50、ted RentalsEnd Markets2018End Markets2018Construction47%Industrial/Non-construction50%Non-Construction53%Commercial Construction46%So urce: Company reportsResidential4%Herc RentalsSource: Company reportsH&E EquipmentEnd Markets2018End Markets2018Contractors35%Non-Residential62%Industrial29%Other15%O

51、ther Customers19%Industrial12%Infrastructure & Government17%Oil & Gas6%So urce: Company reportsResidential5%Source: Company reportsS E R V I C E S13Car rentalsEnd markets for car rentals, while still challenging, improved in 2018 relative to the prior year, and our base case view is for gradual impr

52、ovement in 2019The historical high correlation between pricing and fleet costs (lower residual values have been highly correlated to higher prices) still hasnt fully materialized in the industry and 2019 will be an important year for car rental companies to realize some pricing gains after several y

53、ears of cost pressures Fundamentals were helped in 2018 by lower fleet costs as the used car market improved, higher volume, and a stable but still challenging pricing environmentIn 2019, we also expect investors to focus on the return on investment in pricing tools and technology as assumptions on

54、secular and cyclical trends (from ride-sharing and general macro environment) continue to be testedManheim Used Vehicle Index(2009-Present)14514013513012512011511010510095Source: Manheim Auctions, BloombergS E R V I C E S14Hertz vs. Avis comparisonHertz and Avis ComparisonHTZPricing (y/y)U.S. RAC In

55、ternational (ex. FX)Per unit fleet costs (y/y)U.S. RAC International (ex. FX)2015-2.5%1.5%2016-6.0%-2.0%12.7%-7.9%2017-1.0%-1.0%8.6%2.8%1Q18-1.0%5.0%-13.2%8.8%2Q180.0%2.0%-19.3%3.6%3Q183.0%3.0%-14.7%3.0%4Q183.0%0.0%-15.2%-0.9%20181.0%3.0%-15.6%3.5%CAR2015201620171Q182Q183Q184Q182018Pricing (y/y)Amer

56、icas-2.0%0.5%-1.7%-0.2%-0.8%-0.2%2.1%0.1%Americas (ex. FX)-6.0%-5.0%-1.8%-0.3%-0.9%0.3%2.5%0.3%International-3.2%8.5%3.4%-4.2%-8.7%-1.0%International (ex. FX)-5.0%-2.1%-2.2%-1.8%-4.9%-2.7%Per-unit fleet costs (y/y)Americas5.8%-3.6%-6.7%-10.4%-7.7%-7.0%Americas (ex. FX)6.1%-3.9%-6.7%-10.1%-7.4%-7.0%I

57、nternational0.5%11.5%6.5%0.4%-3.9%2.7%International (ex. FX)1.8%-0.5%0.5%2.6%0.0%0.4%Source: Company reports; J.P. MorganS E R V I C E S15Home Automation & Security ServicesWe expect continued earnings growth in 2019 in the home automation and security space driven by stable attrition rates, better

58、cost trends, and strategic partnerships Attrition has been stable for most players in 2018 and we expect this trend to continue in 2019The majority of industry participants have produced strong operational results in 2018Lower subscriber acquisition costs have also been credit positives which we exp

59、ect to continue into 2019Were also constructive on partnership initiatives (i.e. ADT and AMZN), which we think will improve return on marketing investments and subscriber growthS E R V I C E S16H I G H Y I E L D M A N U F A C T U R I N G / G E N E R A L I N D U S T R I A L S & S E R V I C E SAgendaE

60、xecutive Summary1Manufacturing/General Industrials2Aerospace/Defense6Services10Relative Value17Company Profiles26Disclosures51PageR E L A T I V E V A L U EAerospace/DefenseM o ody s Amt.Recent QuotesYTWMo d. Ne xt C all D ata Gross NetLT MInt. Debt /TEV /M ktCoupon Desc. Rec. Ma turityS&P OutBidYT W