Taking Stock - Samsung Electronics flags 53% jump in Q2 profit

In today's taking stock we discuss, Samsung Electronics, the world’s largest memory chip and smartphone maker said profit for the quarter ended June 30 was likely 12.5 trillion won ($11 billion).

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MARKET COMMENTARY

SOUTH AFRICAN MARKET COMMENTARY

The Johannesburg Stock Exchange weakened on risk-off sentiment as investors remained cautious ahead of the Fed minutes. The Johannesburg All-Share index closed down 0.48% (to 65,850 index points) while the Top-40 index fell 0.54%. The biggest decliner was retailer Steinhoff International Holdings, as investors continued to dump its shares after a Friday court ruling threatened its $1 billion global lawsuit settlement plan. Shares of the accounting fraud-hit furniture and clothing retailer slumped 14.20%, valuing the once respected growth stock at 7.21 billion rand ($500 million), down from 8.62 billion rand on Friday.

 

EUROPEAN MARKET COMMENTARY

European stocks closed lower on Tuesday, with investors keeping a close eye on oil markets after talks between members of the OPEC+ oil-producing alliance were abandoned. The pan-European Stoxx 600 ended the session down 0.5%, having fluctuated between gains and losses earlier in the day. Basic resources shares were the worst performers, falling 2.9%. German industrial orders unexpectedly slumped in May, official data showed Tuesday, dropping 3.7% on the month to mark their sharpest decline since the first Covid lockdown of 2020.

 

US MARKET COMMENTARY

US stocks stumbled on Tuesday as Wall Street kicked off the holiday-shortened week with concern that maybe the best of the economic recovery from the pandemic is behind us. Amazon rose 4.7% after the Department of Defense cancelled its $10 billion JEDI cloud contract with Microsoft. Instead, the department is launching a new contract and soliciting proposals from both Amazon and Microsoft. Investors are juggling several signs that the rapid economic growth from the depths of the pandemic could be peaking.

 

ASIAN MARKET COMMENTARY

Shares in Asia-Pacific were mixed in Wednesday morning trade following losses on Wall Street with the S&P 500 ending its seven-day winning streak. Hong Kong’s Hang Seng index led losses among the region’s major markets, falling 0.9%. Chinese electric carmaker Xpeng made its debut in Hong Kong on Wednesday, with shares rising nearly 2% from their issue price in the early moments of trading.

 

CURRENCY MARKET COMMENTARY

The rand weakened on Tuesday as the dollar gained and traders positioned themselves ahead of the release of minutes from the US Federal Reserve's pivotal June meeting. At the close, the rand was trading around R14.39 to the dollar, 0.87% softer. The dollar was up 0.5% against a basket of peer currencies, with investors bracing for more signs of hawkishness in the Fed minutes due on Wednesday.

 

COMMODITIES MARKET COMMENTARY

Gold prices edged lower this morning after hitting a three-week peak in the previous session, as a rebound in the dollar weighed on the safe-haven metal ahead of the release of minutes from the US Federal Reserve’s June policy meeting. Oil prices steadied earlier today after a steep drop in the previous session, following the cancellation of talks among OPEC+ producers that raised the prospect that the world’s major crude exporters will turn on the taps to gain market share.

LOCAL COMPANIES

EOH Holdings (EOH) -4.6%

EOH Holdings could soon be blacklisted by the State IT Agency (Sita) from doing business with government. This follows the public sector corruption scandals uncovered at the group in recent years. The potential sanctions come despite determined moves by EOH and its CEO, Stephen van Coller, to clean up the rot at the IT services firm. “EOH has to date been following the due process as set out by Sita and it is similar to other processes we have successfully completed with other stakeholders,” the group said in the statement to shareholders. “We have made our representations and followed all the required guidelines in this regard. Sita must now follow due process and make its recommendations to national treasury.” EOH has treated Sita “in the same transparent manner that it has engaged with all affected stakeholders during the ENSafrica forensic investigation”, it said. Steven Powell, who heads forensic investigations at ENSafrica (contracted by EOH to probe malfeasance in the group’s public sector business), “engaged actively with the Sita internal audit executive as well as the Sita governance risk & compliance executive” on several occasions in 2019 and 2020. “In addition, correspondence was sent to the Sita caretaker, Luvuyo Keyise, on 5 March 2019 and again on 20 April 2021 explaining the extensive remediation and governance enhancement work implemented within EOH by the new EOH board and management. “The receipt of these communications were acknowledged. EOH anticipated this action two years ago when the scandal broke and was the very reason why EOH approached Sita with the information just weeks after the start of the ENSafrica investigation in March 2019, and we have continued to keep them updated. “EOH was therefore surprised to receive the letter from the Sita on 21 June 2021 (although dated 4 June 2021), which intimated that Sita would consider restricting EOH from doing business with the public sector based on Nexia SAB&T’s forensic audit report to parliament on the department of home affairs’ Abis project.” “It is also important to note that our legal counsel has advised that Sita can only recommend restricting EOH from doing business with the public sector, and this has been confirmed by national treasury. Should Sita recommend said restriction to national treasury, EOH has the right to representation as well as taking the matter on appeal. Given what EOH has achieved in the past two years, our legal counsel believes that we have a very strong case against any blacklisting.” TechCentral last week broke the news that EOH was suing former top managers – including co-founder and former CEO Asher Bohbot – for R6.4 billion in damages over the corruption and governance failures that took place while they were leading the group. Apart from Bohbot, who is being sued for almost R1.7 billion, EOH is also going after former chief financial officer John King (R1.7 billion), former public sector head Jehan Mackay (R1.5 billion) and former head of EOH International Ebrahim Laher (R1.6 billion)

INTERNATIONAL COMPANIES

Samsung Electronics (005930) +1.0%

Samsung Electronics on Wednesday reported a likely 53% jump in second-quarter operating profit, beating market estimates on the back of strong chip prices and demand despite lower smartphone sales. The preliminary result is up 33% from the first quarter and underscores the soaring demand for chips that has depleted stockpiles amid a pandemic-led consumer appetite for electronics and recovering investment in data centers. The world’s largest memory chip and smartphone maker said profit for the quarter ended June 30 was likely 12.5 trillion won ($11 billion), well above a Refinitiv SmartEstimate of 11.3 trillion won. If confirmed later this month, it would be the tech giant’s biggest second-quarter profit since 2018.

 

Pentagon

The Department of Defense announced Tuesday it’s calling off the $10 billion cloud contract that was the subject of a legal battle involving Amazon and Microsoft. But it’s also announcing a new contract and soliciting proposals from both cloud service providers where both will likely clinch a reward. The JEDI, or Joint Enterprise Defense Infrastructure, deal has become one of the most tangled contracts for the DOD. In a press release Tuesday, the Pentagon said that “due to evolving requirements, increased cloud conversancy, and industry advances, the JEDI Cloud contract no longer meets its needs.”

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