Coronavirus - Canary in a coal mine

Apple has warned on its March numbers; this was to be expected given its exposure to China on both the supply and demand sides, but it has clearly surprised some. While new cases are stable for now, it has come at a cost. Controls on movement, quarantined towns and strict operating protocols might be controlling the virus, but the impact on business is inevitable. The longer these measures are required, the more companies will fall short on forecasts. The duration – rather than severity – of the virus is now the biggest factor for the global economy.

Company news
• Apple has issued a statement saying that it would miss revenue guidance for the current quarter due to supply constraints and diminished demand related to the outbreak. No new numbers were provided. Shares are down 2.5%.
• Asiana Airlines, South Korea's second-biggest airline, said today all of its employees will take unpaid leave as air travel demand has plummeted due to the coronavirus outbreak. Some of about 10,500 employees are set to take ten days of unpaid leave starting tomorrow.
• Audi reopened one of its factories in China yesterday.
• Cochlear Limited (a hearing implant maker) has stated its profit growth will be lower in the year as surgeries in China have slowed as a result of the virus.
• Confidence Intelligence Holdings (printed circuit board assembly) has suspended production at its plant in Shenzhen as a part of countermeasure against the outbreak. The company has warned that the suspension will lead to delays in product deliveries and will affect its interim results.
• Ecolab Inc (water, hygiene and energy technologies) has said its EPS outlook is going to be adversely affected by the outbreak by c4%.
• Electrolux said delays in the resumption of manufacturing will affect the company and there will be delays in deliveries to some end customers.
• Exel Composites said the outbreak is affecting production volumes in China in Q1, but that it’s too early to estimate the impacts of the outbreak on the company’s business and financial performance.
• Faurecia, a €6bn market cap French auto component company, produced its Q4 numbers yesterday. China sales fell, with the country accounting for 30% of its sales. It has 58 plants in the country. It is undertaking a progressive start of production: 52 plants, 81% of normalised capacity, restarted today.
• Highway Holdings (metal stamping) has said its operations in Shenzhen are currently halted due to the outbreak.
• HSBC – As a result of the impact of the coronavirus outbreak, HSBC has lowered its expectations for growth in the Asian economy in 2020. The main impact is expected in Q1, but this is on the assumption that the virus is contained: “Depending on how the situation develops, there is the potential for any associated economic slowdown to impact our expected credit losses in Hong Kong and mainland China… Longer term, it is also possible that we may see revenue reductions from lower lending and transaction volumes, and further credit losses stemming from disruption to customer supply chains.”
• Hyundai has suspended one of its five factories in South Korea due to the virus outbreak. The Ulsan plant, one of the most productive in the world, has been shut due to a lack of parts.
• InterContinental Hotels commented that the coronavirus is a challenge for the travel industry and that there will be some short-term impact; 15% of the business total room capacity is in China. Travel in China is significantly down in February.
• Kendrion said the impact of coronavirus could be severe, although to date it is limited.
• Strauman, which produces dental implants, stated: “Looking ahead, the impact of the coronavirus on sales is difficult to quantify. Based on current estimates, it could reduce 2020 Q1 revenue by CHF 30m or more (c8%).”
• Tekmar Group (sub-sea cable protection) – China’s response to the outbreak is having a material impact on performance, but it is not yet able to evaluate the fall out. Shares are down 25%.
• Walmart has said that its Chinese business will be hit in its Q1 numbers and this tempers its expectations for the full year.

Events
• The Annual International Exhibition of Inventions due to be held in March in Geneva has been postponed to September. More than half of the exhibitors come from Asia, with a third from China.

Other
• Singapore’s Finance Minister has said that it has set aside S$800m more to fight the outbreak.
• Singapore plans to spend S$5.6 billion in two packages to aid businesses and workers, as the economic fallout from the coronavirus is set to be worse than the 2003 SARS pandemic, Finance Minister Heng Swee Keat said in speech outlining government’s budget.
• China’s international trade promotion council has said some customers in Russia, Turkey, the Middle East and North Africa have stopped accepting deliveries of Chinese metal products.
• South Korean President Moon says the economy is in an emergency situation due to the outbreak of the coronavirus.
• Hong Kong’s Chief Executive Carrie Lam has increased the funds available to tackle the disease from HK$25bn to HK$28bn.
• Chrome ore is building up at the Northern Chinese ports through a combination of reduced demand and difficulty in transportation. This is a demonstration of the pressure building in the supply chain.
• 500m people in China are currently affected by policies restricting movement, with 77m in complete regional lockdown. The graphic below gives an idea of the scale.
• The Financial Reporting Council (FRC) has today published guidance for companies on disclosure of risks and other reporting consequences arising from the emergence and spread of the coronavirus. The regulator is also discussing with audit firms whether the virus affects their ability to review component audits in China and the consequences to delivering timely audit opinions.
• Straits Times – Thousands of containers of frozen pork, chicken and beef are piling up at some major Chinese ports as transport disruptions and labour shortages slow operations, people familiar with the matter said. Deliveries are mounting at ports, including Tianjin, Shanghai and Ningbo because there are not enough truck drivers to collect containers due to travel curbs imposed in the country to control the coronavirus, said the people, who asked not to be identified because they are not authorised to speak publicly. Ports are also starting to run out of electricity points to freeze the containers and some ships have been told to re-route to other destinations in mainland China and Hong Kong.