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Samsung Profit Misses Estimates as Stronger Won Hits Sales

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  • Samsung Profit Misses Estimates as Stronger Won Hits Sales

Samsung Electronics Co. reported lower-than-projected profit as it lost momentum in memory chips and faced a strengthening South Korean won.

Operating income rose to 15.1 trillion won ($14.2 billion) in the three months ended December, according to preliminary results released Tuesday. That compares with the 16.1 trillion-won average of analysts’ estimates compiled by Bloomberg. Shares of Samsung fell 1.6 percent to 2,559,000 won in early trade.

Prices for benchmark memory chips have leveled off after a year of strong gains, limiting the growth that had powered Samsung to record earnings in the past two quarters. That has combined with rise of about 7 percent in the won against the dollar in the fourth quarter to erode the value of profits earned abroad. Still, rising demand for organic light-emitting diode screens helped to fuel a rise in sales to 66 trillion won in the quarter, compared with the 67.6 trillion won analysts expected.

“The exchange rate probably undercut the earnings by 300 to 400 billion won,” said Greg Roh, an analyst at HMC Investment Securities Co. “Given special bonuses as well as a lot of marketing expenses for smartphones and televisions in the fourth quarter, we can expect a steep rise in the first-quarter operating profit to 15.9 trillion won.”

Samsung, based in Suwon, South Korea, leads in the next generation of screens called organic light-emitting diodes. It supplies OLED screens for Apple Inc.’s iPhone X even as the two companies vie for dominance in the global smartphone market.

Samsung won’t provide net income or break out divisional performance until it releases final results later this month.

Samsung’s shares hit record highs in 2017 before sliding in November after Morgan Stanley downgraded the stock citing an expected peak in the memory chips cycle and a slowdown in smartphones.

South Korea’s government this month warned about the rise in the won and said it will take steps in the case of one-sided moves in the nation’s currency.

“The won-dollar exchange rate is worrisome,” Lee Seung-woo, an analyst at Eugene Investment and Securities, said in a report before the announcement. “The first quarter earnings are expected to be 15 trillion won.”

Samsung is said to be planning to debut its new flagship smartphone, the Galaxy S9, next month, presenting Apple’s iPhone X with a sooner-than-expected challenger. Samsung is also seeking to release a phone with a bendable display to help fend off challenges from Huawei Technologies Co., Oppo and other Chinese rivals.

The company’s cash cow has been the memory business. Contract prices for 32 gigabyte DRAM server modules nearly doubled last year while prices for 64 gigabit MLC NAND flash memory chips rose 55 percent in the same period, according to inSpectrum Tech Inc.

Samsung underwent a leadership change on the heels of its record earnings in the third quarter, with CEO Kwon Oh-hyun resigning to pave the way for Kim Ki-nam, a seasoned semiconductor engineer. The company’s de facto chief, Jay Y. Lee, has been fighting allegations of corruption in court, appealing a five-year sentence given in August when he was convicted of bribing a presidential confidante to get greater control of the company.

The 49-year businessman denies the charges and is awaiting a ruling on his appeal by an appellate court on Feb. 5. Samsung Electronics, of which he is a vice chairman and board member, is the crown jewel of a conglomerate comprised of about 60 units selling selling life insurance, cargo ships and clothes.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Energy

Egbin Decries N388B NBET Debt, Idle Capacity

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Egbin-Power-Plant - Investors King

Egbin Power Plc, the biggest power station in Nigeria, has said it is owed N388bn by the Nigerian Bulk Electricity Trading Plc for electricity generated and fed into the national grid.

The company disclosed this on Tuesday during an oversight visit by the Senate Committee on Privatisation, led by its Chairman, Senator Theodore Orji, to the power station, located in Ikorodu, Lagos.

The government-owned NBET buys electricity in bulk from generation companies through Power Purchase Agreements and sells it to the distribution companies, which then supply it to the consumers.

The Group Managing Director, Sahara Power Group, Mr. Kola Adesina, told the lawmakers that the total amount owed to Egbin by NBET included money for actual energy wheeled out, interest for late payments and available capacity payments.

Egbin is one of the operating entities of Sahara Power Group, which is an affiliate of Sahara Group. The plant has an installed capacity of 1,320MW consisting of six turbines of 220 megawatts each.

The company said from 2020 till date, the plant had been unable to utilize 175MW of its available capacity due to gas and transmission constraints.

Adesina said, “At the time when we took over this asset, we were generating averagely 400MW of electricity; today, we are averaging about 800MW. At a point in time, we went as high as 1,100MW. Invariably, this is an asset of strategic importance to Nigeria.

“The plant needs to be nurtured and maintained. If you don’t give this plant gas, there won’t be electricity. Gas is not within our control.

“Our availability is limited to the regularity of gas that we receive. The more irregular the gas supply, the less likely there will be electricity.”

He noted that if the power generated at the station was not evacuated by the Transmission Company of Nigeria, it would be useless.

Adesina said, “Unfortunately, as of today, technology has not allowed the power of this size to be stored; so, we can’t keep it anywhere.

“So, invariably, we will have to switch off the plant, and when we switch off the plant, we have to pay our workers irrespective of whether there is gas or transmission.

“Sadly, the plant is aging. So, this plant requires more nurturing and maintenance for it to remain readily available for Nigerians.

“Now, where you have exchange rate move from N157/$1 during acquisition in 2013 to N502-N505/$1 in 2021, and the revenue profile is not in any way commensurate to that significant change, then we have a very serious problem.”

He said at the meeting of the Association of Power Generation Companies on Monday, members raised concern about the debts owed to them.

He added, “All the owners were there, and the concern that was expressed was that this money that is being owed, when are we going to get paid?

“The longer it takes us to be paid, the more detrimental to the health and wellbeing our machines and more importantly, to our staff.”

Adesina lamented that the country’s power generation had been hovering around 4,000MW in recent years.

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Crude Oil

Oil Rises on U.S. Fuel Drawdowns Despite Surging Coronavirus Cases

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U.S. Crude Oil - Investors King

Oil prices climbed on Wednesday after industry data showed U.S. crude and product inventories fell more sharply than expected last week, reinforcing expectations that demand will outstrip supply growth even amid a surge in Covid-19 cases.

U.S. West Texas Intermediate (WTI) crude futures rose 48 cents, or 0.7%, to $72.13 a barrel, reversing Tuesday’s 0.4% decline.

Brent crude futures rose 34 cents, or 0.5%, to $74.82 a barrel, after shedding 2 cents on Tuesday in the first decline in six days.

Data from the American Petroleum Institute industry group showed U.S. crude stocks fell by 4.7 million barrels for the week ended July 23, gasoline inventories dropped by 6.2 million barrels and distillate stocks were down 1.9 million barrels, according to two market sources, who spoke on condition of anonymity.

That compared with analysts’ expectations for a 2.9 million fall in crude stocks, following a surprise rise in crude inventories the previous week in what was the first increase since May.

Traders are awaiting data from the U.S. Energy Information Administration (EIA) on Wednesday to confirm the drop in stocks.

“Most energy traders were unfazed by last week’s build, so expectations should be high for the EIA crude oil inventory data to confirm inventories resumed their declining trend,” OANDA analyst Edward Moya said in a research note.

On gasoline stocks, analysts had expected a 900,000 barrel decline drop in the week to July 23.

“The U.S. is still in peak driving season and everyone is trying to make the most of this summer,” Moya said.

Fuel demand expectations are undented by soaring cases of the highly infectious delta variant of the coronavirus in the United States, where the seven-day average for new cases has risen to 57,126. That is about a quarter of the pandemic peak.

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Crude Oil

Oil Price Rises To $74.70 Despite Delta Variant

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Oil prices - Investors King

Oil price inched higher on Tuesday despite the fast spreading COVID-19 Delta variant. Brent crude oil, against which Nigerian oil is priced gained, $0.20 or 0.27 percent to $74.70 per barrel on Tuesday at 12:05 am Nigerian time.

Delta variant is spreading in China, the world’s largest importer of crude oil, forcing crude oil investors to start cutting down on their oil demand projections.

The Delta variant is still spreading and China has started to clamp down on teapots, so their import growth would not be that much,” said Avtar Sandu, a senior commodities manager at Singapore’s Phillips Futures, referring to independent refiners.

Strong U.S. demand and expectations of tight supplies have helped crude oil to recover from a 7 percent slump recorded last Monday to mark their first gains in two to three weeks last week.

Global oil markets are expected to remain in deficit despite a decision by the Organization of the Petroleum Exporting Countries (OPEC) and allies, collectively known as OPEC+, to raise production through the rest of the year.

There is seemingly a battle within the energy complex between the prevailing supply deficit engineered by OPEC+ and the threat of the COVID-19 Delta variant in regions with low vaccination rates,” said StoneX analyst Kevin Solomon.

The slow take-up of vaccinations will continue to limit some upside in oil demand in those regions, and there will be intermittent spells in the recovery in the coming months.

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