Weekly Roundup 2022-10-21

Weekly Roundup 2022-10-21

Lunar Capital Weekly Roundup

Index / Fund / Rate Start of Year Last week This Week % change YTD
JSE ALSI 73 723 64 271 65 539 -11.10%
NASDAQ Composite 15 833 10 321 10 860 -31.41%
S&P 500 4 797 3 583 3 753 -21.76%
Prime Lending Rate 7.25% 9.75% 9.75% 34.48%
Lunar BCI WW Flexible Fund 165.68 141.74 143.88 -13.16%
USD/ZAR 15.96 18.37 18.10 13.41%
EUR/ZAR 17.95 17.85 17.86 -0.50%
Brent Crude 77.86 91.66 92.82 19.21%

Source: iress

Company and Market News

Last week, ASML released their Q3 2022 results. ASML is an innovation leader in the semiconductor industry. They provide chipmakers with hardware, software, and services to mass produce patterns on silicon through lithography. In simple terms, to manufacture chips. For the quarter, net sales were up 10.25% to €5.8 billion compared to the same quarter last year. Net profit, for the quarter remained flat at €1.7bl and ASML recorded a net margin of 29.4%. For the last 5 quarters, the orders received have surpassed net sales, reflecting growing demand for their machines. Their results have shown more resilience compared to some of the other semiconductor companies. During the week, the share price increased by 17.93%. However, the share price has decreased by 33.5% since the beginning of the year.

One of the main reasons that ASML’s results have been so resilient, is that ASML has an effective monopoly on the sale of lithography machines. The demand for their lithography products has remained above their current supply levels. Some of their current customers are decreasing their forecasts of capital expenditure. They asked ASML to delay the delivery time of their orders. Most of ASML’s clients, however, have urged ASML to get their machine orders as soon as possible. In 2021, around 67% of the sales were accounted for by 2 customers, and roughly 40% of the net sales were recognised in Taiwan. This poses a risk to ASML. If there were to be any sudden demand side shocks to these customers or Taiwan – it could negatively affect the short-term prospects of the company.

Before ASML released their results, The USA put severe export controls on the sale of advanced semiconductor products to China. While this has a negative outlook for certain US producers, ASML is not directly affected by it, as they are based in the Netherlands. A few years ago, the European Union had already put export controls on specific semiconductor equipment, which includes the EUV (Extreme Ultra-Violet) lithography machines that ASML sells. ASML is still currently able to sell the Deep Ultra Violet (DUV) machines to China. If the EU were to put more strict controls on semiconductor companies, ASML may likely not be as badly affected as some of the other semi-conductor companies. 85% of their current order-book is for their EUV and immersion technology, which they have already been banned from selling to China.

Disclosure: ASML is held in the Lunar BCI Worldwide Flexible Fund.

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