News

LG Display Co., Ltd’s (NYSE:LPL) common stock achieved our target price on 06 April 2009, reflecting improvement in the benchmark KOSPI index, coupled with renewed positive investor sentiments over stabilization in LCD panel prices. However, we downgrade the common stock from a BUY to a HOLD, as the current common stock price no longer supports our BUY rating. We will reassess our target price and rating once the company announces its 1Q 09 results. We downgrade the LPL ADR from a HOLD to a SELL as the current price no longer supports our HOLD rating. In addition, we continue to expect a negative currency impact on the ADR. We will reassess our target price and rating once the company announces its 1Q 09 results.

The Infineon Technologies AG (NYSE:IFX) common stock price appreciated significantly on 06 April 2009, following speculation that the German government was likely to provide debt finance to the company. However, we downgrade the common stock from a HOLD to a SELL as the current price no longer supports our HOLD rating. We will reassess the Infineon common stock rating and target price in our next full update report. We maintain our SELL rating for the ADR based on our fundamental outlook and negative currency impact. We will reassess the ADR rating and target price for Infineon in our next update report.

New Valuations

Diana Shipping Inc (NYSE:DSX) As outlined above, the declining demand for iron ore and coke will have a negative impact on freight rates in the near term. Furthermore, the company’s recent renewal of time charter contracts at lower rates is an example of an industry wide trend, which we believe will have a significant negative impact on freight rates. Going forward, we believe that there will be more visibility in freight rate movement once the agreement between Biosteel and Australian iron ore importers is reached in the coming months. Considering these factors, we remain cautious about the company’s future top-line growth. Although the company’s debt increased from US$172.6 mn in 4Q 07 to US$238.1 mn in 4Q 08, we believe that the company is financially sound with a low debt-to-equity ratio compared to its peers, such as Genco Shipping & Trading Ltd, and will be able to withstand the effects of the economic slowdown. Moreover, we believe that the cancellation of future dividends, announced in 3Q 08, will support the company’s future cash flow. Overall, we believe the market has already taken into account the problems facing the company over our investment horizon and we believe the NYSE common stock is fairly valued at current price levels.

Pohang Iron and Steel Co(NYSE:PKX) Steel prices have declined significantly since the historical high prices experienced in July 2008. Hence, although Posco reported robust fiscal performance in FY 2008, we expect the company’s growth to decline in FY 2009, as the commodities cycle takes a downturn. We expect steel prices to remain low through FY 2009, as slowdown in the global economy causes a decline in steel demand. Major steel consuming sectors, such as automotive, construction and shipbuilding, are facing significant weakness in demand, as customers delay purchases and expansion plans due to lack of credit availability. However, higher government spending through stimulus packages are likely to improve steel demand. Posco’s low cost structure and strong balance sheet enhances its performance during the current downturn, providing an advantage over its competitors. Furthermore, Management’s expansion plans and backward integration efforts, by gaining ownership of raw material sources, supports our positive outlook for the company.

Ryanair Holdings PLC(NASDAQ:RYAAY) Going forward, in 4Q 09, we expect significant decline in Ryanair’s total operating revenues, primarily due to an anticipated decline in Scheduled revenues, partially offset by an expected modest increase in Ancillary revenues. However, Ryanair’s Scheduled revenues in 4Q 09 are expected to decline due to weaker yields from price promotions. This is in-line with the company’s guidance. Although we anticipate weak operating performance in 4Q 09 due to declining yields, we believe the company will benefit from not hedging its fuel costs in 4Q 09. The company’s fuel cost is expected to decline significantly y-o-y in 4Q 09, reflecting a decline in fuel prices, partially offsetting the decline in operating performance. This is coupled with the expected decline in airport and handling charges, given the intense competition between airports to secure a higher share of passenger traffic. Based on the factors described above, we expect a mixed performance from Ryanair in FY 2009, given the high fuel prices in the first half of the year, offset by lower fuel prices in the second half of the year. We expect Ryanair to incur fuel costs of approximately €200.0 mn in 4Q 09. This is significantly lower than the fuel costs incurred in any of the previous 3 quarters of FY 2009. In FY 2010, we expect strong improvement in Ryanair’s passenger traffic associated with the seasonal Easter period in 1Q 10, coupled with a shift towards budget air travel. We expect Ryanair’s FY 2010 passenger traffic growth to be further supported by an expected economic recovery in the second half of FY 2010. This increase in passenger traffic will benefit overall revenue growth in FY 2010, marginally offset by an expected decline in yields. We expect Ryanair to save €343.8 mn on fuel costs in FY 2010 due to the anticipated decline in the jet fuel prices. Ryanair has hedged 75% of its 1H 10 fuel requirement and 50% of its 3Q 10 fuel requirement at US$650 per ton of jet fuel. Therefore, we expect significantly higher profitability in FY 2010.

China Mobile Limited(NYSE:CHL) During the year, the rural market continued to contribute significantly to China Mobile’s subscriberbase and revenue growth. However Average Revenue Per User (ARPU) witnessed declining growth driven by lower Average Revenue Per Minute (ARPM) partially offset by higher Minutes Per Usage (MOU). Considering the low level of wireless penetration in rural China, going forward we expect China Mobile to continue its efforts to penetrate rural areas there-by witnessing healthy growth in subscriberbase. However, as rural areas are characterized by typically low-end subscribers, ARPU is expected to decline, further impacted by an anticipated increase in competition due to the revamp of the telecom industry. Furthermore, weighing the factors of a maturing market in urban areas, competition and weaker consumer spending due to the economic slowdown we anticipate operators to focus on VAS to drive top-line rather than engaging in price competition on voice services. Moreover, with the launch of 3G services, mobile data revenues will boost non-voice revenues. In order to further boost the VAS business and integrate its 2G/3G network China Mobile expects capex to remain at current high levels for the next two years despite the fact that growth is slowing down.

Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC)The introduction of MNP in Turkey (on 09 November 2008), intensified competition and forced Turkcell to carry out various promotional activities to attract new subscribers during 4Q 08, resulting in higher subscriber acquisition costs. Going forward, we expect intensified competition (due to MNP) to result in a decline in subscriber-base and blended ARPU negatively impacting revenues from Turkish operations. Conversely, we expect non Turkish operations to register impressive top-line growth, driven by robust expansion in subscriber-base. Furthermore, the acquisition of BeST expanded geographical coverage and is likely to provide new business opportunities for Turkcell. Along with higher promotional activities and increased network expenses, we expect depreciation and amortization expenses to increase, going forward due to an increase in asset base. Accordingly, we expect operating margin to remain under pressure. In light of the above factors, coupled with a decline in consumer confidence index and weak Turkish economy, we have a muted outlook for the company.

GlaxoSmithKline PLC (NYSE:GSK) Glaxo’s Pharmaceutical segment will continue to be negatively impacted by the loss of patent protection for its products, such as Coreg, Imitrex, Lamictal, Paxil, Requip, Wellburtin and Zofran, coupled with decline in sales for its anti-diabetic drug, Avandia. We also remain concerned over the subdued pharmaceutical growth recorded in Glaxo’s key markets of the US and Europe in FY 2008, due to greater competition from generic drugs. Hence, we expect growth to remain subdued, going forward. Revenue growth for Glaxo’s respiratory product; Seretide/Advair (the highest selling respiratory product worldwide) will be driven by strong growth rates expected from respiratory products, which may be partially offset by competition from AstraZeneca PLC’s Symbicort, which received approval for expanded indications on 02 March 2009. Higher Government orders are expected to drive growth in Glaxo’s Vaccine portfolio, with particular strong growth expected from Rotarix and Cervarix, coupled with the anticipated approval for Cervarix by the US Food and Drug Administration (FDA) during FY 2009. We are also optimistic over Glaxo’s increasing penetration in emerging markets, given the significant increase in sales force in Russia and China, and cost savings from a declining headcount in the US. We anticipate higher Research and Development (R&D) expenses, associated with 30 products in advanced stages of development and higher Selling, General and Administration (SG&A) expenses, associated with a focus on increasing the company’s penetration in Japan and emerging markets. We anticipate a continued decline in margins, associated with increase in the proportion of relatively low margin vaccine sales and higher sale in emerging markets.

Ingersoll-Rand Company Limited (NYSE:IR) top-line increased 58.0% y-o-y in 4Q 08, primarily reflecting revenues from the acquisition of Trane Inc. Going forward, Management believes most of the company’s end markets will continue to remain weak in 2009, reflecting the impact of slow down in the global economy. IR generates 35% of its total revenues from the US construction market. The declining construction spending in the US will negatively impact IR’s top-line growth, as the demand for most of the company’s products, such as Heating, Ventilation and Air-Conditioning (HVAC) products, security products and industrial products, depend on construction, commercial and industrial activities in the US. Furthermore, the company expects the total demand for refrigerated trailor units in North America and Europe to decline by 36% y-o-y in 2009. In light of this, Management expects the company’s revenues, on a pro-forma basis, to decline by 7%-9% in FY 2009. For 1Q 09, Management expects revenues to decline by 17% y-o-y on a pro-forma basis. Based on these factors, we have lowered our revenue and earning estimates for 1Q 09 and FY 2009. However, we expect a marginal economic recovery in 2010. Furthermore we believe the current stock price discounts these near term negatives and the stock is fairly valued at current price levels.

Paragon Shipping Inc. (NASDAQ:PRGN) As outlined above, the declining demand for iron ore and coke will have a negative impact on freight rates in the near term. Furthermore, the company’s recent renewal of time charter contracts at lower rates is an example of an industry wide trend, which we believe will have a significant negative impact on freight rates. Going forward, we believe that there will be more visibility in freight rate movement once an agreement between Biosteel and Australian iron ore importers is reached in the coming months. Considering these factors, we remain cautious about the company’s future top-line growth. However, Paragon has already booked 98%, 55% and 38% of its available fleet days for FY 2009, FY 2010 and FY 2011 respectively, which will partially immunize the company from the near term volatility in freight rates. Moreover, we feel the dividend cut in 4Q 08, combined with our expectation of lower dividend payouts in the future, will ensure steady cash flows for the company, which will be used to meet its operating and debt obligations. The company has accelerated its debt repayment schedule which will enable the company to strengthen its balance sheet and will place it in a stronger position in the long term. Overall, given the current price levels and the company’s already booked revenues, we believe the NASDAQ common stock offers an attractive investment opportunity at current levels.

PartnerRe Ltd(NYSE:PRE) Going forward, we expect the hardening of premium rates to support top-line, despite the weakness in global economic conditions. Although we are concerned about increased claims expenses, with Tropical Storm Risk predicting 2009 to be another active year for hurricane activity, the stable outlook for the reinsurance industry from S&P’s, A.M. Best and Moody’s is encouraging. The company has witnessed a modest 2.8% y-o-y decline in shareholders equity compared to peers such as Max Capital Group Ltd (-19.2% y-o-y) and IPC Holdings Ltd (-12.9% y-o-y), which Fitch highlights in affirming Partner Reinsurance Company’s AA Insurer Financial Strength rating and PartnerRe’s other ratings. Moreover, Fitch believes that PartnerRe’s risk management capabilities will help the company to sustain its balance sheet in testing markets. For these reasons, we believe the company is in a relatively strong position, with a respectable investment portfolio, and that the NYSE common stock offers an attractive investment opportunity at current levels.

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