Coronavirus - Seek and you shall find
25 February 2020
Italy and South Korea’s spikes in confirmed cases demonstrate that once an outbreak has occurred in a country, the case numbers grow exponentially once authorities begin systematic testing. In contrast, Japan’s Health Minister said: “It no longer makes sense to test everybody who might have been exposed… as doing so would overwhelm the healthcare system”. Iran, with 15 deaths, is reporting less than 100 cases, which is statistically unlikely and many other countries could be acting as quiet incubators for the virus due to lack of testing and reporting. This is a significant hindrance to the global response.
Cases: 80, 168
• AO Smith (water heater manufacturer) now expects a material adverse impact to its operating results in Q1 2020. The intensity and duration of the virus impact and the resulting disruption to its operations continue to be uncertain.
• Coca Cola has experienced some delays in the production and export of ingredients. It expects to see tighter supplies of some ingredients in the long term if the situation deteriorates.
• Croda International# (UK chemicals) – No employees have been infected. Sales offices have reopened, as have its two production units, albeit with more limited operations than usual. China represents 6% of Croda’s core business sales, 2% of group production and a limited component of its raw material supply chain.
• Elma Electronics (electronic manufacturer) has withdrawn its outlook guidance due to the uncertainty caused by the coronavirus outbreak.
• Extreme Networks (network infrastructure) sees Q3 supply chain disruption from the coronavirus. This will result in a US$10-15m revenue decline on annual revenues of US$1bn.
• Fujifilm – Japan is planning to use its Avigan drug to treat the coronavirus. The Japanese Health Minister has said test dosages have shown its effects in mild and asymptomatic coronavirus cases.
• Gilead – China’s National Intellectual Property Administration said that results for remdesivir will be released on 27 April. It has been trialled on 761 patients in Wuhan.
• IOL Chemicals and Pharmaceuticals Ltd (producer of one third of the world’s supply of Ibuprofen) expects to benefit from higher pricing (20%+). Currently c10% of the world’s supply come from Hubei, which is currently under lockdown.
• Jabil Inc (manufacturing services) has said its factories, which had been adversely affected by the virus, are now running at 65-70% capacity.
• Lululemon: “Following guidance from local authorities, the majority of Lululemon’s 38 stores in China have been closed for a period of time since 3 February 2020, with some now operating on a reduced schedule. The company’s online business has continued to operate.”
• Morgan Advanced Materials (materials and components) – The coronavirus has led to an extended shutdown of its manufacturing facilities in China. Morgan has 8 plants in China: 7 are now open operating at 50-60% utilisation. Its plant in Hubei province is closed, but scheduled to reopen on 11 March. The anticipated impact on revenues is £7m and £3.5m on operating profits. This is on the assumption that plants will be in normal operation by the end of April. China represents c10% pa of group revenue. The company’s plant in the affected area of Northern Italy has been closed for two weeks.
• Philips: “The impact of the coronavirus outbreak on public life and the industry in China is also affecting the demand for Philips’ consumer portfolio in the country and Philips’ global supply chain. While this is expected to have a negative impact on the financial performance of Philips in the first quarter of 2020, the company cannot quantify the magnitude and duration of such an impact at this time given the fluidity of the situation.”
• Ricardo (environmental consulting services) – Full-year results will be affected by the outbreak as the virus has had a disruptive impact on automotive and rail operations in China. “As we start the second half of the year, we have seen increased headwinds in the automotive sector which we anticipate will lead to suppressed order intake in our US, EMEA and China Automotive businesses. The coronavirus outbreak at the start of H2 has already had an operationally disruptive impact on our Automotive and Rail operations in China and we anticipate continuing disruption to client engagement, project delivery and business development in the coming months in mainland China and surrounding countries. Based on the issues highlighted above we are anticipating material impact to our forecast second half profits and thus full year.”
• Sanofi could have a coronavirus vaccine in 12-18 months.
• Servcorp (serviced Offices) says it continues to face headwinds in Asia, most notably China, as a result of the outbreak.
• Treasury Wine Estates (global winemaking and distribution business) expects the impact of the virus to continue through to March at the least.
• TVS Motor Co (Indian motorcycle manufacturer) said its production will drop 10% due to the outbreak.
• China has postponed the annual meeting of the National People’s Congress in Beijing, which was due to start in March. It will now be delayed to an unspecified time. This is the most important event of its political calendar.
• This weekend’s upcoming Serie A matches will go ahead, but six games will be carried out behind closed doors, including the match between Juventus and Inter Milan in Turin.
• Two schools in Chester (UK) have closed after some pupils showed symptoms of the virus after returning from a skiing trip to a coronavirus-hit region of Italy.
• The Taiwan Parliament passed a US$2bn stimulus package to soften the impact the virus has had so far on the economy.
• The Hong Kong Government has extended the suspension of schools until 20 April.
• Garment makers in Vietnam face a severe material shortage from Q2 due to the outbreak according to the Chairman of the Vietnam Textile and Apparel Association.
• The US Center for Disease Control and Prevention has advised against all but essential travel to South Korea.
• The US administration is sending a US$2.5bn funding request to Congress, including US$1bn for vaccines.
• The US and South Korea are considering scaling back joint command exercises.
• The Bahrain civil aviation authority on Monday suspended all its flights from Dubai airport and Sharjah airport for 48 hours over coronavirus fears.
• Kuwait has suspended flights to and from South Korea, Thailand, Iraq and Italy over coronavirus fears.
• Goldman Sachs cut its US Q1 GDP outlook to 1.2% from 1.4%.
• Vietnam – The Health Ministry has said that all 16 people in Vietnam infected with the coronavirus have been cured, and that no new cases have been recorded since 13 February.
• Indonesia – The outbreak is likely to delay US$11bn of nickel and stainless steel projects led by Chinese firms.
• Iranian officials are refusing to impose quarantine in areas affected by the outbreak. They say this is old-fashioned and that they do not believe in it.
• Iran’s Deputy Health Minister has tested positive for the virus.
• Japan – A panel of government experts has warned that the country is on the brink of a rapid increase in coronavirus cases after 160 infections were confirmed in 16 prefectures, leaving authorities puzzled as to their origins. The panel recommended moving from a strategy of keeping the infection out altogether to containing it and slowing its spread. It no longer makes sense to test everybody who might have been exposed to Covid-19, they said, as doing so would overwhelm the healthcare system. Instead, Japan is asking anybody who catches a cold to stay at home and isolate themselves, only seeking medical help if they suffer severe symptoms or a temperature above 37.5°C for more than four days.
• Shanghai Municipal Transportation Commission – Subway passenger flow increased by 68% from a week ago to 2.8m commuters yesterday.
• A hotel in Tenerife with hundreds of guests has been locked down after a guest tested positive for the virus.
• Hungary – The Central Bank says the virus could damage growth prospects.
• Andy Rothman, Investment Strategist at Matthews Asia: “My base case is that economic activity begins to return to normal by late March, and that while first quarter macro and earnings numbers will be terrible, the full-year growth rates are likely to be reasonable.”
#Peel Hunt Corporate Client