(May 19): A growing list of companies in Southeast Asia are sounding the warning bell over rising energy costs and weakening consumer demand as the conflict in the Middle East drags into its third month.
Earnings downgrades have been steepest in the Philippines and Thailand, according to Bloomberg Intelligence analyst Sufianti. Inflation surged to a three-year high in the Philippines, which imports nearly all of its fuel from the Middle East, while Thailand’s economy relies heavily on tourism.
Indonesia and Malaysia have fared better, backed by stronger commodity prices that have helped offset rising energy costs. Companies in Singapore and Vietnam, meanwhile, are faced with rising logistical costs as supply routes are disrupted.
Here’s a roundup, based on statements made around earnings, of how Southeast Asian companies are responding.
Aviation and tourism
The aviation industry is among the hardest hit as more expensive tickets disrupt travel demand.
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AirAsia X Bhd (KL:AAX), Singapore Airlines Ltd and Thai Airways International Pcl have all responded to rising jet fuel costs with fare hikes, fuel surcharges, route cuts and tighter spending controls, while Vietnam Airlines JSC said it activated contingency plans to continue to operate amid the disruption.
Airports of Thailand Pcl said higher ticket prices and cancellations have started to hurt traffic, prompting the state-controlled airport operator to offer incentives and discounts.
Consumer, food and retail
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Rising fuel and freight costs have eroded household purchasing power. Fried chicken chain Jollibee Foods Corp reported a 39% profit drop due to higher commodity and supply-chain expenses, prompting a review of its expansion plans. Charoen Pokphand Foods Pcl of Thailand warned that transport and raw material prices could continue climbing as freight disruptions affect animal feed supplies.
Casino operator Genting Singapore Ltd flagged softer travel demand and weaker consumer sentiment as airfares and living costs rise, while Globe Telecom Inc expects household budgets to be pressured by rising costs.
Energy and petrochemicals
Industrial and petrochemical companies are grappling with supply disruptions as tensions around the Strait of Hormuz threaten the flow of key raw materials.
Thai energy giant PTT Pcl warned of higher financing and procurement costs tied to crude purchases. It has secured additional oil supplies from outside conflict zones. Siam Cement Pcl suspended part of its chemicals operations because of feedstock shortages.
Companies in the sector are seeking alternative suppliers and building inventories as shipping disruptions continue to ripple through supply chains.
Health and financial services
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Healthcare and financial firms have now started to feel the crisis’ secondary effects. Bangkok Dusit Medical Services Pcl said travel disruptions have cut the number of Middle Eastern patients seeking treatment in Thailand, and warned higher living costs could lead consumers to delay non-essential procedures.
In Malaysia, the world’s biggest condom maker Karex Bhd (KL:KAREX), which supplies brands including Durex and Trojan, is raising prices by as much as 30% as the conflict disrupts supplies of oil-based chemicals. Glove giant Top Glove Corp Bhd (KL:TOPGLOV) has also increased prices amid shortages of materials used to make nitrile gloves.
Thai bank SCB X Pcl and Philippines’ largest, BDO Unibank Inc, have increased loan-loss provisions as Southeast Asian lenders prepare for borrowers defaulting amid rising risks tied to slower growth and softer consumer demand.
Tyres
Surging oil prices and shipping disruptions are pushing up tyre production costs, threatening to ripple across freight transport, delivery fleets, buses and farm equipment. The pressure is especially severe in Southeast Asia, a major manufacturing hub supplying markets across North America, Europe and Asia.
The industry’s biggest manufacturers are already warning of rising financial strain. Michelin said a prolonged Middle East conflict could add more than €400 million (US$465 million) in raw material, energy and logistics expenses, while Dunlop and Falken maker Sumitomo Rubber Industries Ltd said higher input costs were hurting profits and prompting price increases in some markets.
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