Coronavirus - Hide and seek

Global equities rallied after several fiscal stimulus moves. G7 nations will use “all appropriate policy tools” and the US Fed led the way, cutting interest rates by 50bp to 1.25%. This will ease nerves, but cases are likely to spiral. The FDA Commissioner said that health officials will be able to perform nearly 1m tests by the end of the week, which compares with 472 as at 1 March according to the CDC; these had a positive diagnosis of 3.1% (vs 5.0% in Italy and 0.2% in the UK). Testing before was limited to sick people and those that had travelled to the affected countries. There was also an issue with the test kits that were sent to labs.


• US reduces interest rate by 50bp, Malaysia and Australia by 25bp
• LSE – Restricts entry to Paternoster Square
• Visa – Reduces sales expectation by c3% for Q2
• 4imprint# – Not seeing short-term supply chain disruption
• Boku# – Has seen an increase in growth in affected areas
• Grammer (auto components) – Expects Q1 to be significantly lower
• Biggest increase in cases – South Korea with 851
• Foxconn – Operating at c50% of seasonal capacity
• Ukraine – First case reported

Company news
• 4imprint# (direct marketer): “Approximately 60% of the blank stock for the products that we sell originates in China. These blank products are imported in bulk by our domestic suppliers who keep them in their local inventory, eventually to be imprinted with a logo and shipped to our customers as orders are placed. The fact that the outbreak occurred around the Lunar New Year means that most of our domestic suppliers were at peak inventory levels when the outbreak began – they typically place orders in preparation for the first half of the year to be delivered, or to be in transit, before the Lunar New Year begins. As a result, to date there has been almost no impact on 4imprint from COVID-19. However, the situation is still very fluid. The Chinese manufacturers who effectively ‘supply our suppliers’ are spread throughout China, typically specialising in a product category. Each of these suppliers is different based on their geographical location, workforce location and requirements, transit restrictions, access to raw materials for the specific product they produce and other factors. The level of any disruption for 4imprint will be closely linked to how long factories are delayed in resuming production. The reduced capacity seen in February, and even into March, is unlikely to cause major disruption in the short term simply due to the inventory cycle of our domestic suppliers. However, the longer that production restrictions persist, it becomes more likely that the inventory held by our domestic suppliers will be depleted and some element of disruption to the supply chain becomes more likely.”
• Aggreko (aircon & power generation equipment): “Our underlying performance during 2019 provides good momentum into 2020 and our preparations for the Tokyo 2020 Olympic and Paralympic Games are progressing well. Notwithstanding this, we are monitoring closely the development and potential impact of the coronavirus outbreak, both in terms of the Tokyo Olympics and the group more widely. At this point, however, we currently expect to deliver results in line with expectations for 2020.”
• Beiersdorf (personal care products) – Consumer business considerably below plan in January and February due to the coronavirus. Nivea sales in China seeing an impact.

• Bell Food (Swiss-based) – Has postponed its AGM, citing coronavirus concerns.
• BMW – Says 85% of its dealerships in China have reopened.
• Boku# (mobile payments & ID): “Naturally we are concerned about the spread of coronavirus and feel for those people affected. The recent growth we have seen in those countries that are most affected has been higher than in those where the virus has had a more limited impact so far. This could be correlation rather than causation, but, in general, the more time people spend indoors, the more our platform is utilised. If large numbers of people are forced to self-isolate we would predict that, as already seen in China, this would lead to an increase in the usage of online games and streaming services.”
• Braemar Shipping (marine and energy services): “Until the spread of COVID-19 shows signs of slowing, forecasts for economic growth and global trade are widely expected to continue to fall. Braemar expects this will have an effect on earnings for the first quarter of the year ending 28 February 2021 in the shipbroking division.”
 British Airways said it was cancelling some flights between the UK and US, as well to some European countries, including Italy, France and Germany. “To match reduced demand due to the continuing coronavirus issue, we are merging a number of flights between 16 March and 28 March.”
• Deutz (combustion engine manufacturer) – The outbreak is taking a significant toll on international transport, travel, industrial logistic supply chain and production capacity in China and globally. The company said it can “no longer exclude [the] possibility of its business and supply chain being affected by the outbreak”.
• Direct Line: “The coronavirus outbreak (specifically the disease COVID-19) has the potential to impact the 2020 result of our travel business. We have travel reinsurance protection to mitigate the cost of an event over a 28-day period to £1m up to a limit of £10m. The full coverage, if utilised, can be reinstated once on the same terms. Currently, incurred claims are around £1m.”
• Foxconn says it is “unable to predict actual full-year impact of the virus”, but the impact on Q1 will be short-term.
• Grammer (auto components): “As a result of the coronavirus outbreak, customers in China were forced to stop production for several weeks from the end of January on. Due to these factors, the company is now predicting a significant decrease in revenues for Q1 compared to the previous year (Q1 2019: €534m). Based on the preliminary figures for the months of January and February 2020, Grammer assumes earnings before interest and taxes (EBIT) (prior year: €24m) and operating EBIT (prior year: €23m) for Q1 to be very significantly lower than in the same period of the last year. From today's perspective, it is difficult to predict the full extent of the negative effects of the coronavirus outbreak on global supply chains as well as markets and whether automobile and commercial vehicle demand will stabilise in H2 2020. For this reason, Grammer is forecasting a decline in sales and earnings for the full year.”
• Hewlett Packard – Cancelling or postponing most events through April.
• Honda – Temporarily cut back production at two Japanese plants due to difficulty sourcing parts from China amid the coronavirus outbreak.

• Hon Hai Precision (Foxconn) – Factories are operating at c50% of seasonal capacity and are expected to be operating normally by the end of March. The Chairman stated: “There’s not a huge hit on demand yet so far, but I dare not and don’t want to predict the outlook of the outbreak. We don’t see a huge issue with our suppliers and we are helping them to secure resources.” Expect H1 sales to be flat.
• Hutchison Chi-Med: “The outbreak is posing some challenges to our operations resulting from restrictions on movement in China. Reduced patient hospital visits for clinical assessment affected the conduct of certain clinical studies and commercial team activities. To date, none of our manufacturing operations in China have been materially affected. Our teams have adapted quickly and effectively thus far across our businesses, and we will continue to closely monitor what is an evolving situation. At this stage we are unable to assess the long-term effect of the outbreak, if any.”
• Inovio: “Inovio is the leader in coronavirus vaccine development and the only company with a Phase 2 vaccine for a related coronavirus that causes Middle East Respiratory Syndrome (MERS). Using our modern DNA medicines platform, we designed our DNA vaccine INO-4800 in three hours after the publication of the genetic sequence of the novel coronavirus that causes COVID-19. We immediately began pre-clinical testing and small-scale manufacture and have already shared robust pre-clinical data with our public and private partners. We plan to begin human clinical trials in the US in April and soon thereafter in China and South Korea, where the outbreak is impacting the most people. We plan on delivering 1m doses by year end with existing resources and capacity. However, we will need additional resources to scale up to make enough doses to help protect Americans from COVID-19 as well as to lead global efforts to curtail this virus.”
• Intertek (assurance, inspection, product testing): “Our 2020 performance will be affected by the temporary disruption to the supply chains of our clients in China and any impact it might have on global trade activities. It is too early to quantify the impact of the novel coronavirus.”
• IWG (serviced offices): “The outbreak of the COVID-19 has led to brief closures of our centres in China, and a close review of the ongoing developments worldwide. Whilst most of the group’s revenue is fixed in the short term, some service revenue is impacted from these closures. Whilst we cannot be certain how long this situation will last, we anticipate that this will have an adverse effect on performance, but it is too early to determine the overall impact.”
• Kandi Technologies (Chinese battery manufacturer) – Q1 results will be affected by virus-related closures.
• Newell Brands (consumer and commercial products): “Revenues may be impacted in H1 2020 due to the outbreak. The exact extent to which the supply chain is impacted is difficult to determine at this point.”
• Qorvo (radio frequency solutions): “On 29 January Qorvo provided March 2020 quarterly revenue guidance of US$800-840m. Since then, coronavirus has impacted the smartphone supply chain and customer demand more than anticipated. Qorvo currently estimates revenue in the March quarter of approximately US$770m, or US$50m below the midpoint. However, the full impact of COVID-19 remains difficult to forecast given the uncertainty of the magnitude, duration and geographic reach of the outbreak.”
• Robert Walters (recruitment): “The global recruitment market remains unpredictable at present, with the coronavirus outbreak, which is likely to negatively impact full-year profit expectations, adding a further layer of uncertainty.”
• Ryanair expects meaningful impact on Q1 from coronavirus.
• Thermo Fisher Scientific (scientific instrumentation and consumables) has said that activity in China is still very slow due to the coronavirus outbreak and H1 revenues will be below original forecasts.
• Visa: “Through 28 February 2020 the most significant impact has been on travel to and from Asia. This has resulted in a sharp slowdown of our cross-border business, in particular travel-related spending in both card present and card not present. Cross-border eCommerce unrelated to travel has thus far not been significantly impacted, except in some Asian markets. In markets where Visa processes the majority of our transactions, domestic spending growth, both credit and debit, remains largely stable with the exception of some impact in Hong Kong and Singapore. Cross-border growth rates have deteriorated week-by-week since the coronavirus outbreak in China, and trends through 28 February 2020 do not yet fully reflect the impact of the coronavirus spreading outside of Asia. As such, we anticipate that this deteriorating trend has not bottomed out yet. Because the situation remains fluid, it is not possible to accurately forecast the growth trend for the rest of our second fiscal quarter or the remainder of FY20. Based on trends through the end of February, and assuming some continuing deterioration in March, Visa expects second fiscal quarter net revenue growth to be approximately 2.5-3.5 percentage points lower than the outlook we shared on our 30 January 2020 earnings call.”

• The Swiss Football League has been suspended until 23 March.
• Adobe has cancelled its Digital Summit due to be held in Las Vegas, which will now be an online event.
• The International Champions Cup due to take place in Asia this summer has been cancelled.
• WTA event the Kunming Open scheduled for 27 April-3 May in the Chinese city of Anning has been cancelled.
• Japan could be allowed to postpone the Olympics to the end of the year, says Japan’s Olympics minister.
• Leipzig Book Fair cancelled due to the coronavirus.
• Dubai – Art Dubai has been postponed.

• Pfizer – CEO Mikael Dolsten says it has identified compounds that have high probability to be effective against coronavirus. Results will be back by the end of March, and if successful the treatment could be in clinics by the end of 2020.
• FDA commissioner Stephen Hahn told a news conference that health officials should be able to perform nearly 1m tests for the novel coronavirus by the end of the week.
• French Health Minister – France has around 100 hospitalised cases.
• Kuwait’s Oil Minister has said that the outbreak has noticeably reduced demand for oil.
• The LSE is introducing a self-declaration policy from Wednesday 4 March. This means all visitors will be asked if they have travelled to, transited through or come into close contact with an individual from the areas listed below in the last 14 days. If they have, they will be denied access to 10 Paternoster Square. The list of restricted areas as of today are Mainland China, Hong Kong, Singapore, Japan, Republic of Korea, Thailand, Taiwan, Malaysia, Macau, Iran, Vietnam, Cambodia, Laos, Myanmar and the whole of Italy.
• Iran – 23 MPs have tested positive for the coronavirus as well as the head of the emergency medical services.

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