Earning Release

Companhia Siderurgica Nacional’s (NYSE:SID) 4Q 08 revenues and adjusted net income were above our estimates due to significantly higher-than-expected steel prices. However considering the recent decline in metal prices, we expect to cut our estimates and target price in our next update report. Therefore, we maintain our SELL rating for the coming 6-12 months. We will reassess our NYSE common stock rating for CSN in our next full update report. We continue to anticipate a significant negative currency impact on the ADR over the coming 6-12 months. Therefore, we maintain our SELL rating. We will reassess our ADR (1 ADR = 1 common share) rating for CSN our next full update report.

CNOOC Limited’s (NYSE:CEO) 2H 08 and FY 2008 revenues increased y-o-y, benefiting from higher average realized hydrocarbon prices and higher production volumes. Going forward, we remain optimistic regarding the company’s efforts to increase its production volumes in FY 2009, given the company’s recent discoveries of oil and gas in Bohai Bay and commencement of hydrocarbon production from its BZ28-2S and PY 30-1 fields in March 2009. Furthermore, we expect CNOOC’s aggressive capex plan, as discussed in our company news alert, dated 20 January 2009, will support its effort to increase production volumes. Although, we are likely to revise our estimates downwards to account for the lower-than-expected FY 2008 results, given our optimism regarding the company’s hydrocarbon production and the common stock’s current price levels, we maintain our current BUY rating over our investment horizon of 6-12 months. We will fully reassess the company in our next update report in the coming weeks. We do not anticipate a change in our BUY rating for the ADR (1 ADR = 100 common shares) on fundamental grounds. The Hong Kong dollar is currently pegged to the US dollar. We will reassess the ADR rating for CNOOC in the coming weeks.

In FY 2008, China Unicom Ltd.’s (NYSE:CHU) revenues declined due to a decline in fixed-line revenues. In addition, EBITDA margin declined due to increased other operating expenses, while adjusted1 operating margin declined due to an increase in depreciation & amortization expenses. However, we believe that current price offers an attractive investment opportunity and as a result we do not anticipate a change in the current rating. We will reassess the common stock rating for China Unicom in the coming weeks. As the current ADR price trades significantly below our target price we maintain our BUY rating for the ADR. The Hong Kong dollar is pegged to the US dollar. We have taken a 6-24 month investment horizon for the ADR. We will reassess the ADR rating for China Unicom in the coming weeks.

Votorantim Celulose e Papel S.A. (NYSE:VCP) announced its 4Q 08 and FY 2008 results on 31 March 2009, noting that lower pulp demand and unfavorable exchange rate movements have negatively impacted its bottom-line. However, at current levels, we continue to see upside potential, given the company’s relative cost advantage and the fall in the ADR price since our last update report. Therefore, we reiterate the ADR (1 ADR = 1 preferred share) a BUY for the coming 6-12 months. We will reassess our target price and rating in our next full update report. We continue to anticipate a significant positive currency impact on the Brazilian preferred stock over the coming 6-12 months. Therefore, we maintain our BUY rating. We will reassess our target price and rating in our next full update report.

News

TAM S.A. (NYSE:TAM) released operational and financial data for 4Q 08 on 30 March 2009. The company reported a robust increase in capacity and demand, especially in international operations. It also reported a decline in per unit costs during the quarter. Despite this, the company reported a net loss in 4Q 08. However, given current price levels and positive operating performance, we maintain the preferred stock a BUY. We will reassess the preferred stock once the company issues its full 4Q 08 and FY 2008 results. Although we expect a negative currency impact on the ADR over our 6-12 month investment horizon, we do not anticipate a change in our current ADR rating, given our fundamental outlook and current price levels. We will reassess the ADR (1 ADR = 1 preferred share) once the company issues its 4Q 08 and FY 2008 results.

New Valuations

Axis Capital Holdings Ltd(NYSE:AXS) Although we expect the hardening of premium rates to support top-line to some extent, we believe prevailing economic conditions, the negative outlook for the insurance industry by rating agencies and a 13.5% y-o-y reduction in the company’s capital in FY 2008 will impose restrictions on the company’s ability to write new business. Moreover, we are concerned about increased claims expenses, with Tropical Storm Risk predicting 2009 to be another active year for hurricane activity, and likely further deterioration in the company’s investment portfolio. However, the stable outlook for the reinsurance industry from S&P’s, A.M. Best and Moody’s is encouraging. Given the increased January renewals (+11% for reinsurance business) Management is optimistic about its competitive positioning and foresees opportunities arising from its distressed competitors. However, it has also demonstrated concern over the shrinkage of its underwriting activities and exposure in some areas. Although we remain concerned by decreased premiums from the Casualty and Political Risk lines, we expect the company’s diversification into various insurance and reinsurance products and in diversified geographical regions coupled with its stable ratings (A+ from A.M. Best in line with peers including ACE Limited, Partner Re and Renaissance Re) will help its business going forward. Moreover, Axis Capital’s strong reserves, increased cash and cash equivalents and the company’s ability to raise US$1.5 bn through a credit facility will help protect it from losses arising from investments and hurricane activities and enable it to recover strongly in the long term. Therefore, our overall outlook for the company is positive and we believe the recent decline in the common stock price has left the stock undervalued.

Thomson Reuters Corporation (NYSE:TRI) Despite the challenging operating environment, Thomson Reuters has guided for revenue growth in FY 2009, reflecting its strong business models across markets and geographies. The company plans to increase its focus on expansion outside North America in order to cater to high growth regions including Asia and the Gulf. In the Markets division, the company plans to invest in developing a common platform, which it expects to contribute to top-line from FY 2010 onwards and also on a new version of Westlaw in the Legal segment. We expect investment in the Markets division to improve performance in the long term, but that the current environment will pose challenges to growth in the near term. Margins in the Professional segment are expected to decline slightly due to higher sales of lower margin software and service products. However, over the long term, margins are expected to stabilize, reflecting benefits from the investment in global expansion initiatives. Thomson Reuters’ business model contains recurring subscription revenues and its services rendered are must-have information for customers across industries. This provides enhanced visibility for top-line in an economic downturn. While the company expects its underlying operating margin to be comparable to FY 2008, it has raised it integrated savings target upwards from US$750 mn to US$1 bn by FY 2011 and total savings target from US$1.2 bn to US$1.4 bn, of which US$750 mn was achieved in FY 2008. The increased savings target, investment in flagship products, and sound business model lead us to view the company positively at current levels.

Thomson Reuters PLC (NASDAQ:TRIN) Despite the challenging operating environment, Thomson Reuters has guided for revenue growth in FY 2009, reflecting its strong business models across markets and geographies. The company plans to increase its focus on expansion outside North America in order to cater to high growth regions including Asia and the Gulf. In the Markets division, the company plans to invest in developing a common platform, which it expects to contribute to top-line from FY 2010 onwards and also on a new version of Westlaw in the Legal segment. We expect investment in the Markets division to improve performance in the long term, but that the current environment will pose challenges to growth in the near term. Margins in the Professional segment are expected to decline slightly due to higher sales of lower margin software and service products. However, over the long term, margins are expected to stabilize, reflecting benefits from the investment in global expansion initiatives. Thomson Reuters’ business model contains recurring subscription revenues and its services rendered are must-have information for customers across industries. This provides enhanced visibility for top-line in an economic downturn. While the company expects its underlying operating margin to be comparable to FY 2008, it has raised it integrated savings target upwards from US$750 mn to US$1 bn by FY 2011 and total savings target from US$1.2 bn to US$1.4 bn, of which US$750 mn was achieved in FY 2008. The increased savings target, investment in flagship products, and sound business model lead us to view the company positively at current levels.

Telecom Italia S.p.A. (NYSE:TI)revenues fell for the seventh consecutive quarter in 4Q 08. We expect this trend to continue on account of the saturated domestic wireline market and the company’s revenue concentration of nearly 50% in this business line. In addition, revenues from Brazilian wireless operations have also been impacted by intense competition from Vivo Participacoes S.A. and Claro, leading to several price-wars and declining market share. TI generates almost 82% of its total revenues from Italy (wireline and wireless business), which operates in a saturated environment and the company lacks the geographical diversification in revenues when compared to other telecom operator such as America Movil and Telefonica. However, with increasing demand for 3G services, demand for 3G enabled handsets is set to increase which would boost TI’s handset revenues, thereby supporting top-line growth. In addition, recent domestic price increases positively impacted the company’s wireless and are expected to continue going forward. We remain positive regarding TI’s Broadband business with demand for its broadband offering increasing, mainly in Germany due to relatively low Internet penetration in the region.

Telecomunicações de São Paulo S.A. (NYSE:TSP) We expect Telesp to experience healthy top-line performance driven by growth in Data Transmission and Pay TV revenues, supported by rising Pay TV subscriber-base from the Sao Paulo region. Telesp’s Pay TV services have been well accepted, reflected in a healthy 104.5% y-o-y increase in subscribebase in 4Q 08. São Paulo is the richest and largest city in Brazil and has the highest population in South America, thereby presenting huge growth prospects for Telesp’s Pay TV and Broadband services. However, despite the company dominating São Paulo’s wire-line market, it has experienced muted performance, led by the rising shift of subscribers toward wireless services. Moreover, in late FY 2008, Anatel, the Brazilian Telecom regulator, implemented number portability in Brazil’s major regions, with a plan to execute it nationwide in FY 2009. Number portability implementation will make telecom operators such as Telesp more susceptible to aggressive competitive activity. Frequent technical failures make the company’s network quality fairly average compared to its peers and as Telesp does not offer wireless services, competition from telecom carriers that provide both fixed and mobile services is intense. To counter competition arising from number portability implementation, we expect Telesp to undertake increased promotional spending which would negatively impact margins. Based on the above operating concerns, coupled with the possibility of incurring a fine of BRL1.0 bn, we hold a cautious outlook on Telesp.

Acergy S.A.(NASDAQ:ACGY)Uncertainties surrounding the global economy are continuing to hold down hydrocarbon demand and prices, hindering the investment decisions of oil and gas companies. Hence, we remain concerned about Acergy’s performance in FY 2009 and we expect revenues to decline and margins to deteriorate during the year. However, we expect that an upturn in the global economy from the beginning of FY 2010 will support an increase in hydrocarbon demand and prices, encouraging investment in E&P activity. This will support the demand for Acergy’s services, driving the company’s revenues and margins going forward. Given its association with major oil & gas companies and its leading position in the subsea engineering and construction industry, we believe Acergy is well poised to capture our expectation of a recovery in demand for its services from FY 2010. Therefore we believe that the company’s ADR is underpriced at current levels.

We expect Biovail’s (NYSE:BVF) recently revamped strategy to focus on the Central Nervous System (CNS) market to support revenue growth over the long term. The CNS sector is a niche market, with a smaller patient population and unmet requirements. We continue to expect increasing generic threat to Biovail’s once best selling drug; Wellbutrin, which is likely to be partially offset by the recently launched products over the next 2 years. The recently introduced Xenazine (indicated for Huntington’s disease) and the 2H 09 launch of Aplenzine (an anti-depressant) is expected to partially offset the abovementioned negatives. Xenazine has orphan drug status for 7 years, supporting revenue growth over the long term. Moreover, Biovail has premium pricing capability for Xenazine, which is priced at US$30,000 to US$45,000 per year for a patient. In terms of Research and Development (R&D), Biovail has 3 generic filings. In addition, the company has 2 innovative drugs; a treatment for sexual dysfunction (BVF-324) and an anti-depressant (BVF-045), which is expected to be developed with a prospective partner. Biovail is seeking strategic partners for licensing approximately 5 drugs targeted for CNS indications by 2012. In FY 2008, Biovail generated strong cash flow from operations and boasts a healthy cash position (US$318 mn in FY 2008) and debt free status. Biovail is constantly seeking in-licensing of potential drugs and acquisition of companies with a promising product portfolio. Considering the robust cash flow from operations and healthy cash position, we believe Biovail will be able to fund any future acquisitions and continue to support its R&D expenditure. We believe the company will experience softening of G&A expenses, which are likely to decline, as a percentage of revenues, led by a smaller sales force required for marketing Xenazine in the US, which will, however, be offset by higher R&D expenses, as a percentage of revenues. Biovail has set aside US$600 mn in R&D expenses over a 5 year period, spanning FY2008-FY2012, from which it has currently spent approximately US$92 mn until FY2008. Consequently, we expect higher R&D expenses, as percentage of revenues, over the next 2 years, resulting in pressure on operating margin over the next 2 years. Therefore, we maintain our HOLD rating for Biovail’s NYSE common stock, as we believe the stock is fairly valued at current levels.

Cadbury (NYSE:CBY) has been previously successful in developing new product variants to expand its market presence across all geographies, reflected by robust FY 2008 results. Going forward, we expect Cadbury to register strong revenue growth driven by higher price realisations, partially offset by declining volumes. In terms of geographical regions, we expect the top-line to be driven by impressive performance from emerging economies. Furthermore, through the company’s Vision into Action plan (which is based on growth, efficiency and capability), Cadbury has undertaken multiple cost cutting initiatives to reduce Selling, General and Administrative (SG&A) expenses and also changed its pricing mix. In light of this, we expect trading costs, as a percentage of revenues, to decline going forward, driven by the expected decline in SG&A expenses, partially offset by higher commodity input costs associated with the high price of cocoa. Therefore, we believe the current downturn in consumer spending will have relatively little impact on the company’s performance, going forward.

Novartis AG(NYSE:NVS) We maintain our positive outlook for the expanded indication of Glivec/Gleevec as the first postsurgical treatment for stomach tumors by the European Medicines Agency (EMEA), and expect an approval by the US Food and Drug Administration (FDA) during FY 2009. The expanded indication is expected to further strengthen revenue growth for Glivec/Gleevec. On 21 January 2009, Novartis announced that it received approval for Tasigna, Xolair, Co-Diovan and Lucentis in Japan, the second largest pharmaceutical market in the world (Source: Espicom). We anticipate significant revenue growth for these products, going forward. Furthermore, we maintain our positive outlook for Novartis’ developmental pipeline and expect FDA approval for, QAB149 (Chronic Obstructive Pulmonary Disease (COPD)), ACZ885 (Muckle-Wells Syndrome), FTY720 (Multiple Sclerosis) during FY 2009 and FY 2010. Although the FDA has requested additional data for the approval of Menveo, a vaccine for infants, we believe the vaccine will secure FDA approval over the near term. On 30 March 2009, Novartis secured FDA approval for Afinitor (for advanced kidney cancer), which has potential for becoming one of the key products in its portfolio, going forward, as it addresses an unmet medical requirement and caters to a growing market. The company has made significant acquisitions during FY 2008, namely Alcon Inc. (eye care), Speedel Holding AG (for the future development of Tekturna/Rasilez, Protez, PTZ601) and Netkar Therapeutics for its pulmonary business. These acquisitions are expected to strengthen the company’s Research and Development (R&D) pipeline, with a concomitant increase in R&D expenses, as a percentage of sales, going forward. We also expect margins to be negatively impacted by the anticipated increase in Selling, General and Administration (SG&A) expenses, associated with the company’s policy of increasing penetration in emerging markets. The company has stated in its 4Q 08 and FY 2008 results release that it has achieved higher-than-anticipated cost savings in FY 2008, with Project Forward and remains on track to achieve further savings in FY 2009, positively impacting margins, partially offset by increase in SG&A and R&D expenses.

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