News

Yingli Green Energy Holding Co. Ltd.’s (NYSE:YGE) ADR price has appreciated significantly since our 3Q 08 update report, dated 28 January 2009, primarily based on improved investor sentiments following efforts initiated by the Chinese government to stimulate the acceptance of solar power over conventional sources of energy (as discussed in our company news alert, dated 27 March 2009). Moreover, speculation that the Japanese government may provide incentives to improve energy efficiency and encourage renewable energy use in its stimulus plan further boosted solar stock prices. We believe the efforts initiated by various governments will benefit solar companies going ahead. In light of these factors, even though our target price does not support a HOLD rating at current price levels, we maintain our HOLD rating for the stock. We will reassess our target price and rating for the company’s ADR in our 4Q 08 and FY 2008 update report in the coming weeks. Although we anticipate a positive currency impact on the European stock over the medium term, we maintain the European stock a HOLD rating given current price levels and our fundamental outlook. We will reassess our target price and rating in our 4Q 08 and FY 2008 update report in coming weeks.

New Valuations

Telefónica S.A. (NYSE:TEF)domestic wireline services have been experiencing mute performances on account of a saturated wireline market and rising shift of subscribers towards wireless services. Wireless revenues too are showing signs of slowing down due to high penetration rates of approximately 113% in Spain as of 31 December 2008. In addition, a decline in tariffs and a deteriorating domestic and European macroeconomic environment is expected to have a material impact on revenues, already reflected by weak 4Q 08 performance across both regions. However, we believe that this impact would be offset by strong growth from revenues in the Latin American region on account of relatively lower wireless penetration rates, particularly in Brazil, Mexico, Columbia, and Chile of approximately 78%, 70%, 86% and 88% respectively as of 31 December 2008. In addition, revenues are also set to increase, backed by higher demand for broadband services as the broadband penetration rate of 3.1% for Latin America is miniscule compared to 13.9% for Europe as of 31 December 2007. Telefonica’s Pay TV services offered in the São Paulo region through its subsidiary, Telecomunicações de São Paulo S.A.’s (Telesp), experienced a 105% y-o-y increase in subscriber-base to 472,222, driven by increased demand. Furthermore, rising Internet penetration in Latin America is expected to result in healthy growth from Telefonica’s VoIP services. According to Frost & Sullivan, a research & consulting firm, the total VoIP market in Latin America is expected to reach US$625.9 mn in FY 2012 from US$72.3 mn as of 31 December 2007, indicating a CAGR of 54% and a strong growth potential for Telefonica considering its dominant presence in the region. Overall we believe Telefónica will be able to capitalize on the growth prospects present in Latin America, particularly in Brazil through Vivo, and witness robust growth in Broadband and Pay TV services. However, this impact would be partly offset by slowing growth from its Domestic and European services.

Eni S.p.A. (NYSE:E) Uncertainties surrounding the global economy will continue to impact hydrocarbon demand and prices during FY 2009, limiting the performance of companies in the oil and gas industry. In light of this, we expect Eni’s revenues and margins to decline during FY 2009. Furthermore, although an anticipated recovery in the global economy and upturn in hydrocarbon demand and pieces will support the company’s revenue growth, margin performance will be constrained by a slow pace of recovery in hydrocarbon prices. However, given an industry leading growth in hydrocarbon production in FY 2008 among private oil and gas companies and Management’s initiatives to sustain long term growth, we believe Eni is undervalued at current price levels.

FUJIFILM Holdings Corporation(NASDAQ:FUJI)We maintain our weak outlook for Fujifilm’s overall performance, primarily due to the company’s significant dependence on the Japanese economy (46.7% of 3Q 09 revenues), which is currently experiencing severe recession. Japanese exports declined 36.9% y-o-y in December 2008. In addition, the country is also experiencing low capital spending levels, for example, capital spending declined 17.3% y-o-y in the last quarter of 2008 (Source: The Wall Street Journal, dated 06 March 2009). Consequently, we anticipate the performance of Fujifilm’s key business segment; Document Solutions (46.7% of 3Q 09 revenues) to be significantly impacted, as major corporate businesses across the world are likely to postpone their capital expenditure plans in light of declining corporate profits and lack of cheap credit. Moreover, we also believe Fujifilm’s Imaging segment will be adversely impacted in light of a weak outlook for digital cameras (approximately 30% of Fujifilm’s Imaging segment) reflecting low consumer spending levels. The global shipment of digital cameras is expected to decline 0.7% y-o-y to 118.9 mn units in 2009, compared to the 19.3% y-o-y increase experienced in 2008 (Source: Article by Camera & Imaging Products Association (CIPA) dated 27 January 2009). Considering the weak revenue outlook, associated with deteriorating global economic conditions, we expect margin erosion over the next 2 years. We expect product margins to decline, considering weaker consumer spending, compelling the company to offer significant incentives to sustain demand. Hence, our outlook for Fujifilm’s revenue and margins remains weak over the medium term. However, we anticipate gradual recovery in the company’s revenues and margins from FY 2011 onwards, associated with marginal improvement in global economic conditions.

StatoilHydro A.S.A. (NYSE:STO) The deteriorating global economy continues to impact global hydrocarbon demand and prices, constraining the performance of major oil and gas companies. As we do not expect an improvement in the global economy over the medium term, we believe low hydrocarbon prices will continue to impact the company’s financial performance, with revenues and margins expected to decline during FY 2009. However, we believe an anticipated improvement in the global economy from FY 2010, will support a recovery in hydrocarbon demand and prices, driving StatoilHydro’s performance, going forward. Hence, we believe the company is undervalued at current price levels.

Talisman Energy Inc (NYSE:TLM) As the uncertainties surrounding the global economy continue to prevail and limit hydrocarbon demand, we expect hydrocarbon prices to remain at low levels through FY 2009. With Talisman’s hydrocarbon production expected to remain flat in FY 2009 and given our expectations of low hydrocarbon prices, we expect the company to experience a decline in revenues and deterioration in margins during the period. Furthermore, although an anticipated improvement in the global economy in early FY 2010 and the resulting strengthening in hydrocarbon demand will support the rise in hydrocarbon price, benefiting Talisman’s top-line growth, margin performance will be limited by the slower pace of recovery in hydrocarbon prices. Hence, we maintain our muted outlook for Talisman’s common stock.

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