Jarden Brief: US company gets cooked in chip wars as China strikes back

The ban follows a failed "network security review" and comes amid ongoing geopolitical tensions. Photo / 123RF

Keeping you up to date with the latest market moves, in association with Investment firm Jarden.

International

US

US-based Micron Technology Inc, the largest American memory chipmaker, expects a low-single to high-single digit percentage hit to revenue after China’s cyberspace regulator banned the sale of its memory chips to crucial domestic industries over the weekend.

The ban follows a failed network security review, with no details provided about identified risks or affected products.

Micron’s chief financial officer Mark Murphy said direct and indirect sales to China-headquartered companies constitute roughly a quarter of the chipmaker’s revenue.

ZIM Integrated Shipping Services, a global container liner shipping company, reported its first quarter showing revenues of US$1.4 billion, a net loss of US$58 million, and adjusted ebitda of US$373m.

These figures represent significant year-over-year decreases due to declining freight rates and weak demand.

The company carried 769,000 twenty-foot equivalent unit containers in the first quarter, a 10.0 per cent reduction from Q1 last year, and the average freight rate per TEU decreased by 64.0 per cent to US$1,390.

Despite these challenges, ZIM reaffirmed its full-year 2023 guidance, expecting an adjusted ebitda of US$1.8-$2.2b and an adjusted ebit of US$100-US$500m.

Rest of the World

Airline operator Ryanair Holdings reported its FY23 results ended March 31st, rebounding from a previous year’s loss and achieving a profit after tax of €1.43b.

This turnabout was driven by a 74.0 per cent increase in traffic, improved fares, an industry-leading cost base, and beneficial fuel hedges.

Notable metrics include a surge in the passenger load factor (percentage of seats filled) from 82.0 to 93.0 per cent, a rise in customers from 97.1 million to 168.6 million, and a 124.0 per cent increase in revenue from €4.80b to €10.78b.

Cost control efforts helped maintain a margin in line with historical levels, with operating costs increasing by 75.0 per cent.

Ryanair’s market share grew across Europe, with gains in Italy, Poland, and Ireland. New bases and routes, effective fuel hedging, and early restoration of pay cuts contributed to this success. A signed order for 300 MAX-10 aircrafts is set to support future growth.

Commodities

Oil prices experienced a 1.0 per cent increase overnight due to robust demand forecasts for the latter half of 2023 and declining supplies from Canada and OPEC+.

Brent futures rose to US$76.00 a barrel, while West Texas Intermediate (WTI) crude increased to US$72.30 per barrel.

The International Energy Agency (IEA) flagged a potential oil shortage later in the year, anticipating that demand could surpass supply by nearly 2 million barrels per day. This demand growth, largely driven by Asia, could potentially exacerbate supply shortages and boost prices.

Australia

City Chic Collective has announced an update regarding operations, including alterations to its debt facility, a strategic review, and recent trading data.

City Chic’s strategic review aims to focus on online and international businesses, with a plan to reduce inventory to less than A$100m by the end of 2023.

The company has also simplified logistics, closed several warehouses, transitioned to an automated facility in the US, and shifted to a new international freight forwarder to cut costs.

Its trading update mentioned group sales for 45 weeks to May 14 were down 15.2 per cent to A$262m compared to the previous year, but have shown improvement in April and May.

CEO Phil Ryan remains optimistic about returning to profitable growth despite challenging operating conditions.

New Zealand

Infratil has announced a net parent profit of $643.1m from continuing operations for FY23 ended March 31st, an increase of 11.9 per cent from the previous year, primarily due to substantial earnings growth from its associates and the gains from selling Trustpower’s retail business and One New Zealand’s passive tower assets.

The company’s portfolio performed well, with CDC Data Centres, One New Zealand, and Wellington Airport driving a proportionate ebitdaf of $531.5 million.

In addition, Infratil has committed to reducing emissions in line with the Paris Agreement goals.

Over the past year, approximately $1.4b was invested across Infratil’s digital and renewable businesses, and the company retains significant liquidity for further investment.

Infratil provided FY24 guidance for proportionate ebotdaf of between $570m to $610m, reflecting strong momentum across the portfolio. Furthermore, Infratil will pay a fully imputed final dividend of 12.50 cents per share, marking a 4.0 per cent increase from the previous year.

Sanford has agreed to sell the Annual Catch Entitlement (ACE) for its North Island inshore species quota to Moana New Zealand via a long-term agreement of approximately 10 years.

The arrangement will see Sanford streamline its operations, and the value for this package of ACE starts at nearly $11m for the first year, scaling up to $13m over the next five years.

The deal includes selling two of Sanford’s inshore fishing vessels, select processing equipment, refrigerated vehicles/trailers, and a marine farm in the Marlborough Sounds’ Croisilles Harbour to Moana.

However, this will lead to the closure of Sanford’s fish processing plant in Auckland.

Sanford retains ownership of the quota for these North Island species and continues to hold quota in several deepwater and South Island inshore fisheries.

The transaction is subject to regulatory conditions and expected to settle in Q4 of FY23.

Gentrack Group, a software solutions provider for utilities and airports, reported substantial growth in its 1H23 results ended March 31.

Revenue increased 47.7 per cent to $84.3m. Net profit after tax increased from a $5.8m loss in 1H22 to a profit of $7.9m.

Significant growth was observed in the utilities business (up 51.2 per cent YoY) and in the Veovo airports business (up 26.7 per cent YoY).

The strong performance has led to an upgrade in FY23 and FY24 revenue guidance to $157m-$160m.

Despite the expected loss of one-off revenues from insolvent UK customers, the company is optimistic about its future, anticipating FY23 revenue in the range of $157 million-$160 million with an ebitda of approximately $22 million.

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The Jarden Brief is provided for general information purposes only. It reflects views and research available at the time of publication, using external sources, systems and other data and information we believe to be accurate, complete and reliable at the time of preparation. We make no representation or warranty as to the accuracy, correctness and completeness of that information, and will not be liable or responsible for any error or omission. The Jarden Brief is not to be relied upon as a basis for making any investment decision. Please seek specific investment advice before making any investment decision. Jarden Securities Limited is an NZX Firm. A financial advice disclosure statement is available free of charge at https://www.jarden.co.nz/our-services/wealth-management/financial-advice-provider-disclosure-statement/.

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All market pricing and announcements are sourced from Refinitiv, NZX and ASX.