TOKYO: Nissan Motor Co. expects flat operating profits this fiscal year, far below analysts’ expectations, as Japan’s third-biggest carmaker grapples with a global chip shortage, rising material costs and China’s COVID restrictions.
Nissan joins a growing list of global companies warning about worsening profitability as they cannot fully pass on soaring input costs to consumers and are bracing for more supply chain hold-ups following the Ukraine conflict and prolonged COVID lockdowns in China.
Its bigger rival, Toyota Motor, said on Wednesday “unprecedented” hikes in raw material costs could slice a fifth off full-year profit.
Nissan expects sales to rise by 18.7 percent in the current financial year to 10 trillion yen ($77.6 billion).
But operating profit would grow just 1 percent to 250 billion yen, below the 318.5 billion yen mean estimate from 19 analysts polled by Refinitiv.
“Semiconductor shortage is a new normal, same as pandemic, and we have to live with it because this is not going to finish tomorrow morning,” Nissan Chief Operating Officer Ashwani Gupta said during an earnings call.
Nissan said it expected raw material and logistics costs to increase by about 1.5 times to 212 billion yen ($1.65 billion) in the fiscal year that started in April, with more than half due to steel and aluminum. It also projected an additional 45 billion yen in logistics cost increases for the current year.
It would respond to the price increases by hedging and pre-ordering the materials, said chief financial officer Stephen Ma.
Nissan CEO Makoto Uchida said the Japanese automaker supports its alliance partner Renault’s plans to separate its electric vehicle (EV) business, but further discussion was needed to see whether such a move would strengthen their alliance.
The French carmaker said in April all options were on the table for separating its EV business, including a possible public listing, as it seeks to catch up with rivals such as Tesla and Volkswagen.
But the move has raised speculation that Renault may consider lowering its stake in Nissan.
Renault owns 43.4 percent of Nissan, which in turn has a 15 percent non-voting stake in the French company, and the structure of their partnership has long been a source of friction in Japan.
The car makers’ two-decade-old alliance, which includes Mitsubishi Motors, was rocked by the 2018 ouster of alliance founder Carlos Ghosn amid a financial scandal.
They have since pledged to pool more resources and work more closely together to make electric cars.
Nissan swung to an operating profit of 56 billion yen in the fourth quarter, helped by cost cuts and a sliding yen, versus a 19 billion yen loss in the same period a year earlier.
The result was better than an average 38.3 billion yen profit forecast from eight analysts polled by Refinitiv.
Nissan said previously the world semiconductor shortage caused its global production to fall for a fourth consecutive business year, with the latest decline being 11 percent drop year on year.
Shares in Nissan closed up 1 percent prior to the results, outperforming a 1.8 percent fall in the broader market.
Global investors increasingly attracted by Saudi Arabia’s incredible economic progress, say top officials at Franklin Templeton
Updated 14 sec ago
RIYADH: Driven by giga-projects and economic reforms under the Vision 2030 program, Saudi Arabia has emerged as an attractive destination for investors, said top officials at global asset management firm Franklin Templeton.
Speaking to Arab News in an exclusive interview, Salah Shamma, head of MENA equities for Franklin Templeton’s Emerging Markets Equity group, struck an upbeat tone when discussing the opportunities available in the Kingdom.
“Large-scale projects that are long term in nature and are looking to be driven mainly by the public sector but with large or significant private sector participation have given a boost to the equity market in Saudi Arabia,” he said.
Shamma also pointed to the young demographic of Saudi society, adding: “You’ve got one of the fastest growing populations which is a critical factor when you’re looking at emerging markets in general. What’s more, the Kingdom has one of the highest per capita incomes in the world and a very supportive environment for companies to operate within the consumer space.”
His enthusiasm was echoed by Mohieddine Kronfol, chief investment officer, global sukuk and Middle East and North Africa fixed income, at Franklin Templeton.
Kronfol explained that now is a great time to invest in fixed income markets for two reasons.
“One is obviously that yields are today much higher than they were a year ago and so there’s much more income for investors to be able to take advantage of,” he said, adding: “There’s also more protection that fixed income markets can offer. So when you talk about the Saudi fixed income markets, we’re talking about a very high quality, mainly government-sponsored markets, which is a safe place to put your money to work.”
Large-scale projects that are long term in nature and are looking to be driven mainly by the public sector but with large or significant private sector participation have given a boost to the equity market in Saudi Arabia.
Kronfol went on to say that Franklin Templeton’s outlook for debt in Saudi Arabia and the region in general is “very constructive, very positive.”
“We think that investors would be looking to take advantage of the yields on offer and the security and safety that these government bonds and government issues provide,” he said.
Reflecting on Saudi Arabia’s position in the bond market, Kronfol claimed the Kingdom has made “incredible progress” over the past five years.
“The Kingdom went from really hitting well below its economic weight in terms of its share of the regional bond markets into now being not just a leader in our conventional bonds but also in global Shariah-compliant bonds or sukuk markets,” he said.
Other than Saudi Arabia, Shamma and Krofnol are also positive about opportunities in the UAE which has witnessed significant improvements in its investment and ownership laws.
“The amount of businesses that are setting up in the UAE and the activity that we’re seeing is all quite positive for corporates that are operating within the country,” Shamma said.
But that’s not all. He pointed out that, among the other positive developments in Gulf Cooperation Council countries, governments have been expediting their divestment program and selling quality assets and blue-chip assets at attractive valuations.
“They’ve managed to de-risk a lot of these assets and offer them to the public. So you’re getting these quality, large scale infrastructure-related companies that have a very secure and visible cash flow over a long period of time and coming at an attractive valuation,” Shamma explained.
Kronfol said that the region has witnessed a strong rebound in economic activities after the COVID-induced slowdowns.
“As far as our region is concerned, we had a very sound response to the pandemic not only from a public health point of view but also from a reopening point of view,” he pointed out.
“The policies were so good that we actually engineered the same recovery spending one third of what emerging markets were spending, and one sixth of what the developed world spent.”
Kronfol believes it was because of this post-pandemic reopening that the region was able to absorb some of the higher input costs, thanks to relatively well-anchored inflation, positive growth and strong balance sheets.
“Whatever costs that came through to companies or governments, as far as higher input costs were concerned, they were able to pass that on without too much difficulty,” he continued. “And that’s one of the main reasons why you find that the region has outperformed other emerging markets in many developed markets over the past few years.”
Kronfol added: “Now, going forward, much will depend on the path of interest rates, the dollar and the one area of focus for us which is oil…I know policy makers here are doing what they can to keep oil prices up but there’s some uncertainty attached to that. However, if we continue to have oil above $70 and we have the policy flexibility because of our financial resources, I think the region is well placed.”
Challenges investors face
Asked about the challenges faced by investors, Shamma replied: “What’s happening right now in the world is that, with higher interest rates, the cost of capital in general is increasing. As such, when the cost of capital is increasing, you’ve got different assets that are competing for that capital.
“So, at this point in time, I think the key challenge that investors need to address is mainly on the asset allocation issue as they need to decide whether it’s time to benefit from higher interest rates which are quite attractive now or to invest in equity markets.”
Shamma added: “Since we are in a higher interest rate environment with tightening monetary policies after years of loose monetary policy as well as lower interest rates, there is a fair amount of volatility that is affecting all asset classes in general.
“Also, our markets are not going to be immune to that volatility, especially now that the participation of foreign investors has increased in our markets.”
Shamma believes since regional markets have done quite well over the past couple of years and valuations have risen significantly, another key challenge is for corporations to stick to their expansion plans.
“If the corporates are not able to deliver on their growth promises then obviously we will see a fair level of adjustment. That being said, we believe that investors in this type of environment need to be significantly more selective in not just trying to choose the best companies but also the best managers and the best asset classes to invest in given the volatility and level of uncertainty that we have in the global backdrop,” he concluded.
China to implement zero tariffs on coal imports to the end 2023
Updated 24 March 2023
BEIJING: China will extend some preferential tax policies and continue to implement zero tariffs on coal imports until the end of this year, state media CCTV reported on Friday, citing a cabinet meeting chaired by Premier Li Qiang on the same day, according to Reuters.
China cut tariffs on coal to zero in April last year in the face of concerns over domestic energy security and supply disruptions.
The country’s coal imports in the first two months of this year surged 71 percent from the same period last year, as utilities stepped up purchases of cheap thermal coal from Indonesia while arrivals from Mongolia also picked up after the easing of COVID-19 restrictions.
China will also cut some taxes for small companies and individual businesses and extend such favorable policy until the end of 2024, state media reported.
Other preferential tax policies include a reduction in tax related to research and development and a halving of logistics companies’ tax on warehouse land for bulk commodity storage in urban areas.
The cuts are expected to reduce the total burden by more than 480 billion yuan ($69.80 billion) a year, CCTV said.
Last year, when private businesses were hit hard by stringent COVID-19 lockdowns and curbs, China’s tax and fee cuts, tax refunds and deferred payments totalled 4.2 trillion yuan, the finance ministry said. That included 2.4 trillion yuan in VAT tax rebates, the largest in recent years.
World shares fall on banking turmoil, recession worries
Updated 24 March 2023
BANGKOK: Shares fell Friday in Europe and Asia as worries flared over turmoil in the banking sector and potentially worsening risks of recession, according to the Associated Press.
European benchmarks sank as shares in Deutsche Bank plunged more than 10 percent. Reports said its shares fell because the company was facing higher costs for insuring itself against default. US futures turned lower and oil prices fell more than $2.
Investors are worried that more banks might suffer a debilitating exodus of customers following the second and third-largest US bank failures in history. That turmoil is clouding the outlook for what the Federal Reserve will do with interest rates after hiking them to market-rattling heights over the last year.
The fear is that all the turmoil in the banking industry could cause a sharp pullback in lending to small and midsized businesses around the country. That could put more pressure on the economy, raising the risk for a recession that many economists already saw as likely.
Germany’s DAX lost 2.5 percent to 14,834.24 and the CAC 40 in Paris tumbled 2.5 percent to 6,965.01. Britain’s FTSE 100 declined 2.1 percent to 7,245.65. The future for the S&P 500 was 0.9 percent lower while that for the Dow industrials lost 1.1 percent.
Deutsche Bank’s shares plunged 14 percent after an overnight surge in credit default swaps — a hedge against defaults for bond investors. Other European banks also lost ground. Commerzbank dropped 8.7 percent,
Societe General skidded 7.7 percent and Credit Suisse, itself subject to a government-arranged buyout by UBS, dropped 8.6 percent. UBS gave up 8 percent.
Regional banks’ shares in Asia were modestly lower Friday, with HSBC Holdings plc losing 2.9 percent in Hong Kong while mid-sized Japanese bank Resona Holdings declined 2.6 percent.
Shares in Japanese energy and electronics company Toshiba Corp. gained 4.2 percent after it announced late Thursday that it had accepted a $15 billion tender offer from a buyout fund made up of the nation’s major banks and companies. If regulators approve it, the proposed buyout by private equity firm Japan Industrial Partners would be a major step in troubled Toshiba’s yearslong turnaround effort, allowing it to go private.
Japan reported that its inflation rate fell to 3.3 percent in February from 4.3 percent the month before, though core inflation excluding fresh food and energy costs rose to 3.5 percent from 3.2 percent. The data suggest persisting pressure on the Bank of Japan to adjust its below zero interest rate policy, though economists said they expect price pressures to abate in coming months.
“Given the recent market turmoil surrounding the banking sector,” ING economists said, “the BOJ’s move will likely be well communicated with the market before it substantially changes its policy.”
Tokyo’s Nikkei 225 index lost 0.1 percent to 27,385.25 and the Kospi in Seoul gave up 0.4 percent to 2,414.96. Hong Kong’s Hang Seng slipped 0.7 percent to 19,915.68 and the Shanghai Composite index sank 0.6 percent to 3,265.65.
Australia’s S&P/ASX 200 shed 0.2 percent to 6,955.20. Shares fell in Mumbai but rose in Bangkok and Taiwan.
On Thursday, the S&P 500 added 0.3 percent for its third gain in four days while the Dow Jones Industrial Average gained 0.2 percent. The Nasdaq composite held up better thanks to strength in technology shares, gaining 1 percent.
Stocks fell sharply the day before after the Federal Reserve indicated that while the end may be near for its hikes to interest rates, it still doesn’t expect to cut rates this year. Fed Chair Jerome Powell also insisted the Fed could keep raising rates if inflation stays high.
Stocks in the financial industry ended up being the heaviest weight on the S&P 500 despite rising in the morning. First Republic Bank fell 6 percent after giving up a gain of nearly 10 percent.
In other trading Friday, US benchmark crude oil dropped $3.09 to $66.87 per barrel in electronic trading on the New York Mercantile Exchange. It gave up 94 cents to $69.96 per barrel.
Brent crude, the pricing basis for international oil, lost $3.08 to $72.42 per barrel.
The US dollar fell to 130.09 yen from 130.83 yen. The euro slipped to $1.0743 from $1.0833.
Apico secures $29m funding for new plastics factory in Riyadh
Updated 24 March 2023
RIYADH: A new plastics factory in Riyadh is a step closer after the Arabian Plastic Industrial Co. secured SR105.5 million ($29 million) of funding from the Saudi Investment Bank.
According to a filing to the Kingdom’s stock market, Apico will use the funds – which come in the form of working capital and a medium term loan – to build the facility as part of a plan to expand production.
The Jeddah-based company had signed a land lease contract with the Saudi Authority for Industrial Cities and Technology Zones – known as Modon – in 2022 with regards to the factory.
Of the SR105.5 million, SR55.5 million will be spent on the expansion with the remainder earmarked for existing facilities.
Apico made its debut on the Kingdom’s stock market in October 2022, when its shares climbed 18.52 percent above its listing price on the first day of trading.
The company offered 1 million shares, or 20 percent, of its SR50 million market capitalization.
The offering coverage was 15.43 times oversubscribed, with the offer price set at SR27 per share.
Established in 1996, Apico serves customers across different sectors, including to Almarai Co., flynas, TotalEnergies, and Nahdi Medical Co..
Moody’s boosts ratings for six key Saudi companies, including PIF and Aramco
Updated 24 March 2023
RIYADH: Saudi Arabia’s Public Investment Fund and energy giant Aramco are among six firms in the Kingdom to have their ratings boosted from stable to positive by Moody's Investors Service.
The credit rating agency said the upgrade in outlook is linked to the strength of Saudi Arabia’s economy, which was also changed to positive from stable earlier this month.
Saudi Basic Industries Corporation, also known as SABIC, Saudi Telecom Co., known as stc, and the Saudi Power Procurement Co. were among the other companies to see their grading increase.
The Saudi Electricity Co. also received a boost.
In a report explaining its rationale for the shift, the ratings agency said: “(These) rating actions are a direct consequence of the sovereign rating action and reflect the credit linkages between the Government of Saudi Arabia and each of the six entities.
“While these corporates benefit to varying degrees from international assets and cash flows, they all have significant credit linkages to the Saudi Arabia sovereign and are exposed to the domestic environment including political, economic, regulatory and social factors.”
Reflecting on Aramco, the report said the company’s A1 rating “reflects its very large operational scale, significant downstream integration and strong financial flexibility given its low cost structure and low leverage relative to cash flows.”
It added: “These characteristics provide resilience through oil price cycles and also help mitigate carbon transition risk, which is a material credit consideration for oil and gas companies.”
Moody’s said that SABIC had been able to maintain its strong global position in the petrochemical and fertilizer market thanks to “competitively priced domestic feedstock under long-term contracts with Saudi Aramco.”
The report added: “These advantages help mitigate to an extent the volatility of its predominantly commodity-based petrochemical, fertilizer and steel activities and SABIC's asset concentration in Saudi Arabia.”
In a section on the PIF, Moody’s said the organization had a “high-quality investment portfolio”, a “very strong financial profile with very low leverage and very high interest coverage”, and an “excellent liquidity profile”.