How coronavirus is impacting these ASX shares

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The coronavirus outbreak has been at the forefront of this reporting season with many ASX shares feeling the impacts. Some ASX shares have been dragged lower simply by the contagion of fear. For others, however, the impacts of coronavirus have been more direct.

Here we take a look at 4 ASX shares impacted by the outbreak and examine its effects. 

BlueScope Steel Limited (ASX: BSL)

BlueScope has warned that its China operations will likely be ‘heavily’ impacted by coronavirus disruptions in February and March. The rate of recovery for the balance of the half-year remains unclear. BlueScope has four major operating sites in China (two in greater Shanghai, one in Tianjin, and one in Xi’an) as well as a number of sales offices.

Following the implementation of return to work safety guidelines, BlueScope’s China businesses are now all operational with the exception of the Hubei sales office. Most employees have returned to work safely and there are no reported cases of coronavirus within BlueScope China. 

Throughput, however, remains limited as staffing is reduced while a significant number of employees are in self-quarantine following New Year travel. Further, logistics movement in and out of facilities is limited and demand is reduced as customers progressively return to operations during February. 

BlueScope has also experienced impacts on its supply chains outside of China, although it says these have been mitigated to date. While BlueScope says that underlying demand across its footprint is generally stable, the economic impact of coronavirus has created uncertainty in its Asian businesses and Asian steel spreads in the near term. 

In its guidance, BlueScope advised 2H20 earnings before interest and tax (EBIT) to be broadly similar to that of the first half ($302.4 million). No contribution from China has been assumed for the half due to coronavirus and seasonality. 

Qantas Airways Limited (ASX: QAN)

Qantas announced temporary reductions to flights across Asia last week in response to a drop in demand due to coronavirus. The company will cut 16% of Asia capacity until at least May, impacting flights from Australia to mainland China, Hong Kong, and Singapore. 

Reductions of 5% are being made to Qantas and Jetstar flights between Australia and New Zealand, with cancellations of flights to Auckland and Christchurch. Jetstar will cut its capacity to Asia by 14% until at least the end of May, impacting flights to Japan and Thailand, and intra-Asia flights. 

Qantas has estimated the net impact of coronavirus of profits will be between $100 million and $150 million EBIT in FY20, softened by weaker fuel prices. CEO Alan Joyce said, “coronavirus resulted in the suspension of our flights to mainland China and we are now seeing some secondary impacts with weaker demand in Hong Kong, Singapore and to a lesser extent, Japan.”

Qantas also announced reductions of around 2% to total group domestic Australia flights in the second half to reflect market demand. Joyce said, “we’re seeing some domestic demand weakening so we’re adjusting Qantas and Jetstar’s capacity in the second half.”

The impact on capacity that Qantas has taken out is equivalent to grounding 18 aircraft across Qantas and Jetstar to the end of May, which impacts around 700 full time roles. Qantas plans to use leave balances across the workforce and freeze recruitment while it rides coronavirus out. It will also take advantage of having aircraft on the ground by bringing forward planned maintenance.

Corporate Travel Management Ltd (ASX: CTD)

Corporate Travel Management downgraded its guidance due to the coronavirus induced travel restrictions. Full-year earnings before interest, tax, depreciation and amortisation (EBITDA) is now forecast to be between $125 million and $150 million. This would represent a flat result on FY19 results at the upper end, or a 16.5% reduction at the lower end of the range. 

The actual impact of the outbreak on Corporate Travel’s results will depend on the severity and duration of the outbreak. The company has assumed the outbreak will last throughout the second half with a peak impact in February and March. Corporate Travel assumes activity will return to normal levels by July.

A key difference with coronavirus compared to previous epidemics is government restrictions on travel to and from China, which is likely to increase the severity of impacts. Corporate Travel reports that in its Asian region, approximately one third of transactions relate to flights into and out of China. In February, post-Chinese New Year activity is down 50%, largely driven by border closures and travel bans. Corporate Travel has advised that significant cost management measures are underway to mitigate lower client activity. 

Across the rest of the world, less than 2% of flights relate to travel to and from China, with less than 4% of flights relating to travel to and from Asia. Minimal impact has been reported in Europe and the US to date. Declines in activity in Australia and New Zealand have been reported which Corporate Travel believes is primarily related to coronavirus. 

Blackmores Limited (ASX: BKL)

Blackmores reported a massive 47% fall in profits for the first half, scrapping its dividend as it warned that the second half would likely be worse due to disruption from the coronavirus outbreak. Shares in the vitamin maker have fallen more than 30% from a 6-month high of $94.95 on 5 February to today’s closing price of $64.33. 

In its half-year results, Blackmores reported that the rollout of new product labels (required due to new product regulations imposed by Australia’s Therapeutic Goods Administration) had been disrupted by the coronavirus outbreak. Forecast costs associated with the change have been revised in the face of this disruption with the work expected to have a $7 million impact on earnings before interest and tax (EBIT) in the second half. 

The outbreak of the coronavirus has caused fallout in China, one of Blackmores’ key growth markets, as well as supply chain disruptions. Channels that rely on the free flow of passengers such as duty free, small business traders, and tourists, have been disrupted. Some e-commerce partners have cancelled or modified February promotions due to the slowdown in China inbound and internal freight which has made it difficult to serve the local market. 

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Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited and Corporate Travel Management Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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