Australia Credit Bond: Initiating Australian rail freight: A$ AZJAU / PNHAU hybrids offer the best value

Research evidence excerpt

Australia Credit Bond: Initiating Australian rail freight: A$ AZJAU / PNHAU hybrids offer the best value

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Australia Credit Bond

Initiating Australian rail freight: A$ AZJAU

/ PNHAU hybrids offer the best value

Initial Opinion - Credit

We initiate coverage on Pacific National (ticker: PNHAU; rated: BBB-/Sta by S&P) and 18 June 2026

Aurizon (tickers: AZJAU / AZOAU; ratings: Baa1/Sta by Moody’s and BBB+/Sta by S&P). Global Corporate Credit

Both are leading operators in Australia’s rail‑freight market. The sector is characterised Asia Pacific (including Australia &

by balanced supply‑demand dynamics post-COVID and high barriers to entry. Cost Japan)

pressures from fuel can be passed through to customers via their contract mechanisms,

albeit typically with a month/quarter delay. However, competition remains a headwind, Table of Contents

and adverse weather events can also disrupt volumes. Valuation-wise, we view PNHAU

bullets and AZOAU bonds as fairly valued, while AZJAU’31/’32 look attractive to us with A snapshot on the Aurizon and PN 5

>20bp pickup versus similar rated peers (Exhibit 2-6). PNHAU/AZJAU hybrids also offer Manageable impacts from ME tension and 7

attractive sub-senior spread pickup/ratio (Exhibit 7). rising fuel cost

Australian Freight Industry 7

Aurizon: defensive network core; haulage upswing ahead Aurizon 9

Aurizon is an integrated rail company, involved in both above-rail haulage (via Aurizon Aurizon Network Pty Ltd (ticker: AZJAU) 12

Operations, 44% of 1HFY26 EBITDA) and below-rail infrastructure (via Aurizon Network, Aurizon Operations Ltd (ticker: AZOAU) 15

56%), holding leading positions in respective market. It is rated Baa1/BBB+ by M/S, both Pacific National (ticker: PNHAU) 19

with stable outlooks.