Earning Release

China Eastern Airlines Corporation Ltd. (NYSE:CEA) reported a dismal performance in FY 2008, with revenues and earnings significantly below our estimates. Although the target price does not support a SELL rating at current levels, we are reiterating the common stock a SELL given the poor performance in FY 2008. We will be reviewing our target price in the next update report. We do not anticipate a change in our ADR (1 ADR = 100 common shares) rating given CEA’s poor 2008 performance. The Hong Kong dollar is pegged to the US dollar.

LG Display Co., Ltd. (NYSE:LPL) reported a y-o-y decline in 1Q 09 revenues and an adjusted net loss1 in 1Q 09 compared to adjusted net profit in 1Q 08. While revenues were in-line with our estimate, EBIDTA underperformed and net loss outperformed our expectations in 1Q 09. Although, we may increase our estimates, going forward, in-line with Management guidance for an increase in shipments and Average Selling Price (ASP), we maintain our HOLD rating for the common stock. We will reassess our target price and rating in our 1Q 09 update report. As we continue to expect a significant negative currency impact on the ADR, we maintain our SELL rating for the ADR. We will reassess our target price and rating in our 1Q 09 update report.

Nokia Corporation’s (NYSE:NOK) net sales, adjusted operating income1 and adjusted net income1 were lower than our expectations in 1Q 09. In view of lower-than-expected results and lackluster industry outlook, we will revise our estimates and target price for the company in our next full update report. Hence, given a significant price appreciation since our last update report and lower-than-expected results, we downgrade the common stock from a BUY to a HOLD with a 6-12 months investment horizon. We will reassess the common stock rating for Nokia in the coming weeks. As we expect a negative currency impact over the next 6-12 months, given current price levels we downgrade the ADR rating (1 ADR = 1 share) from a HOLD to a SELL. We will reassess the ADR rating for Nokia in the coming weeks.

News

On 15 April 2009, Methanex Corporation’s (NASDAQ:MEOH) common stock achieved our target price. Given that our fundamental outlook remains unchanged, we believe the potential upside in the NASDAQ common stock has been exhausted at current levels. Hence we downgrade the rating for the NASDAQ common stock from a BUY to a HOLD. We will reassess our NASDAQ common stock rating and target price for Methanex after in our full update after the company releases its 1Q 09 results. We continue to anticipate a significant positive currency impact on the Canadian common stock over our 6-12 months investment horizon. Hence we reiterate the Canadian stock a BUY. We will reassess our target price and Canadian stock rating for Methanex in our full update report after the company releases its 1Q 09 results.

Trico Marine Services, Inc.’s (NASDAQ:TRMA) common stock has appreciated significantly since our last update report, which we believe reflects the on-going volatility in global equity markets. As we hold a cautious outlook for the common stock given the prevailing weakness in the global economy, falling day rates for Towing and Supply vessels and Trico’s high leverage position, we downgrade the common stock from a HOLD to a SELL over our investment horizon of 6-12 months. We will reassess our target price and rating for the NASDAQ common stock in our full update report after the company announces its 1Q 09 results in May 2009. In our 4Q 08 and FY 2008 update report dated 08 April 2009, we reiterated Trico’s common stock a HOLD on fundamental grounds with a 6-12 month target price of US$2.49, representing a 1.1% upside. Since then, the common stock has appreciated 22.0% to close at US$3.00 on 15 April 2009. The NASDAQ Composite index has appreciated 4.2% over the same period to close at 1,626.80.

On 15 April 2009 Petrobras Energía Participaciones S.A. (NYSE:PZE) announced that its subsidiary company, Petrobras Energia S.A. (PESA), has agreed to sell 60% of its Equity interest in Petrobras Energia Peru S.A. (PEP) to Petrobras International Braspetro (PIBBV) for a net consideration of ARS1.2 bn. We do not expect this divestment to have a significant impact on our PEPSA valuation, hence, based on our fundamental outlook, we maintain out HOLD rating for the PEPSA common stock over our 6-12 month investment horizon. We will reassess the common stock rating in our full update report after the company announces its 1Q 09 results in May 2009. Although we anticipate a positive currency impact on the ADR in the medium term, given our fundamental outlook, we maintain the ADR rating a HOLD. We will reassess our target price for the ADR (1 ADR = 10 common share) after the company announces its 1Q 09 results in May 2009.

AerCap Holdings N.V. (NYSE:AER) announced its 1Q 09 transaction details regarding aircraft purchase and sale, new lease agreements, aircraft financing agreement and other aircraft-related transactions. We believe these are positive developments for the company, given the current phase of slowdown in the airline industry, which has been negatively impacted by the global economic downturn. Furthermore, as current price levels continue to support our BUY rating, we do not anticipate a change to our current NYSE stock rating. We will reassess our target price and rating in our next update report, once company announces its 1Q 09 results. We continue to expect a significant positive currency impact on the European stock over the medium term and given our fundamental outlook for the company and current price levels supporting a BUY rating, we do not anticipate a change to our current European stock rating. We will reassess our target price and rating in our next update report, once company announces its 1Q 09 results.

Dr. Reddy’s Laboratories Ltd. (NYSE:RDY) common stock achieved our target price on 15 April 2009, closing at INR545.95. At current price levels, we believe the common stock is fairly priced. Consequently, we downgrade the common stock from a BUY to a HOLD. We will reassess our target price and rating in our next update report, once the company announces its 4Q 09 and FY 2009 results. We downgrade the ADR (1 ADR = 1 share) from a HOLD to a SELL based on our anticipation of a significant negative currency impact on the ADR over our investment horizon. We will reassess our target price and rating in our next update report, once the company announces its 4Q 09 and FY 2009 results.

15 April 2009, On Nomura Holdings Inc. (NYSE:NMR) announced that it has asked Japan’s Ministry of Finance for approval to issue up ¥400 bn in fresh bonds between 23 April 2009 and 22 April 2011. However, considering the company’s disappointing 3Q 09 results, as well as the impact of ongoing volatility in global financial markets, and on banking stocks in particular, we maintain our 6-12 month HOLD rating. We will reassess our common stock rating for Nomura after the company releases its 4Q 09 and FY 2009 results. We continue to anticipate a significant positive currency impact on the ADR over the coming 6-12 months. Therefore, we maintain our BUY rating. We will reassess our ADR (1 ADR = 1 common share) rating for Nomura when the company releases its 4Q 09 and FY 2009 results.

New Valuations

In FY 2009, we expect PetroChina’s(NYSE:PTR) top-line to decline on a y-o-y basis, as we forecast crude oil prices will remain at low levels. We also expect the slowdown in demand for hydrocarbon products will continue through FY 2009. We have forecast PetroChina’s crude oil output will decline 4.0% y-o-y in FY 2009, with refined products sales volumes set to decline 5.4% y-o-y in the same year. In December 2008, the government of China revised its fuel pricing system and introduced a market-based ceiling that takes into account the cost of crude oil, taxes and an appropriate profit margin for refiners. On 25 March 2009; the government of China announced an increase in domestic gasoline and diesel prices to reflect the recent increase in global crude oil prices. We expect PetroChina’s Refining & Marketing segment will benefit from this more responsive policy implementation. However, overall we expect PetroChina’s operating income will decline on a y-o-y basis in FY 2009, primarily due to lower operating income from its Exploration and Production segment, led by the declining output and our forecast y-o-y drop in the average price of crude oil in FY 2009. Hence, in view of our bleak outlook for the company and the oil and gas sector in FY 2009, we hold a neutral outlook for PetroChina’s common stock over our investment horizon.

Advanced Semiconductor Engineering, Inc.(NYSE:ASX)Globally, semiconductor companies are experiencing severe downward top-line pressure as a result of demand shortfall. Semiconductor Assembly and Test Services (SATS) companies have been no exception to these conditions and have underperformed the broader industry growth rate in FY 2008. FY 2009 is expected to be yet another difficult year for the industry amidst uncertain macroeconomic conditions and collapsing demand pattern and the industry is expected to see the second consecutive year of negative growth. In line with industry weakness, too is expected to be severely impacted due to the current downturn as its major customers, Integrated Device Manufacturers (IDMs) look to cut costs further, via in-sourcing of back-end activities, to hedge against the current downturn. According to global semiconductor research house International Data Corp. (IDC), personal computer shipments are expected to drop 4.5% y-o-y in FY 2009 and mobile phone shipments are expected to dip approximately 8.3% y-o-y. For 1Q 09 ASE expects lower utilization levels to further erode top-line sequentially, resulting in a gross loss in the quarter. Declining volumes in the computing and communications segments, notwithstanding the current demand surge from China, compounded by further ASP erosion is expected to mar ASE’s total net revenue performance severely in FY 2009. Furthermore, ASE has a high level of debt and resultant fixed costs in the form of interest expenses which will further erode margins for the company. We expect the company to report a 27.4% y-o-y decline in revenues and book a full year operating loss (its first since FY 2002) in FY 2009. Although, we expect an uptick in ASE’s business in FY 2010 in wake of an anticipated recovery in demand during the year and an improvement in margins going forward, we do not expect total net revenues and performance to match FY 2008 levels. Thus despite improved valuations, we hold a near term negative outlook for the company and believe it is overvalued at current levels.

On 07 April 2009, AU Optronics (NYSE:AUO)reported revenues of NT$50,733 mn in 1Q 09 (-15.1% q-o-q), which we believe primarily reflects a decline in large panel unit shipments, in addition to small and medium panels. However, the company experienced a strong m-o-m revenue increase of 43.2% in March 2009, compared to a 16.1% m-o-m increase in February 2009 and a 10.1% m-o-m decline in January 2009, reflecting expanding Chinese demand for home appliances, such as TV sets, mobile phones and personal computers, which is also strengthened by the decision of the Chinese government to subsidise these goods for rural consumers of the country. In addition, a decline in inventory levels and, therefore, inventory re-stocking, occurring at multiple levels of the supply chain is also supporting the strong demand. Going forward, we expect this growth in Chinese demand and re-stocking to remain a major driver for the company’s unit shipment growth in 2Q 09. However, over the medium term, we remain concerned over issues of the expected over-stocking occurring by the end of 2Q 09 and weak macro-economic conditions leading to a sluggish demand in other countries, particularly North America and European countries. As a result, we expect revenues to decline y-o-y in FY 2009. However, we expect recovery in demand and, hence, increase in the company’s revenues from FY 2010 onwards. However, prices are expected to remain under pressure over the medium term due the factors described above.

Companhia Brasileira de Distribuicao (NYSE:CBD) In FY 2008, CBD’s sales mix comprised approximately 75% food and 25% non-food items. Going forward, CBD is aiming to achieve a greater proportion of sales from non-food items to support top-line performance, as the average revenue per square meter is higher for non-food items. We believe CBD is well positioned to sustain the current weak economic conditions due to the company’s strong position in the Brazilian retail market, broad product and format ranges and healthy balance sheet. According to Management guidance, capex for FY 2009 is expected to be BRL1.2 bn, out of which approximately BRL750 mn is expected to be used for store openings. Going forward, the company will focus on the expansion of discount (Assai) and convenience store (Extra Perto and Extra Facil) formats. The Extra format stores are relatively smaller in size with a good mix of food and non-food products, providing an opportunity for the company to increase its sales per square meter. In addition, Extra stores cater to demand from all income groups and provide attractive credit options to customers. Furthermore, the company is also expected to extend its Assai store format, which provides an excellent price-to-value option for its customers, as consumers have the choice between wholesale and retail prices for basic products. This is a viable option during the current weak economic conditions, as families purchase products in bulk at lower prices, and then divide the products amongst themselves, attaining significant savings from the retail price. However, we believe CBD’s focus on the high discount store format will negatively impact the company’s gross margins.

Kubota Corporation (NYSE:KUB) Demand for Agricultural Equipment (AE) and Construction Equipment (CE) will continue to decline in Kubota’s major markets, namely; the US, Europe and Japan, due to severe recessionary conditions currently being experienced by these countries. The Association of Equipment Manufacturers (AEM) predicts a y-o-y decline in AE sales for FY 2009 in the North American market. AEM data for US consumer confidence for 31 March 2009 is at a 3 year low, demonstrating delayed consumer spending patterns which will strongly impact new house purchases, negatively impacting the CE industry. Consequently, we anticipate the company’s revenues to remain subdued over the medium term for the ICEM segment. However, revenues from the PVIC segment are expected to continue demonstrating improved performance due to higher then anticipated sales of earthquake resistant ductile iron pipes in Japan and the overseas market, going forward. The decline in sales due to contraction in Kubota’s main markets is expected to have a negative impact on the operating performance, which may be partially offset by lower Cost of Goods Sold (COGS) due to declining global commodity prices. According to the International Monetary Fund (IMF) economic outlook for FY 2009, the US economy is expected to contract 2.6% y-o-y, Europe by 3.2% y-o-y and Japan 5.8% y-o-y. Consequently we hold a negative outlook for Kubota over our 6-12 month investment horizon.

Reed Elsevier NV (NYSE:ENL) Although the strengthening of the euro against Sterling and the US dollar had an adverse impact on revenue growth rate expressed in euros, in constant currency terms, top-line registered a healthy 7% yo- y increase. Reed Elsevier’s core businesses, Elsevier, LexisNexis and Reed Exhibitions exhibited healthy organic revenue growth. However, going forward we expect the difficult operating environment owing to macro-economic challenges to limit the growth of Reed Exhibitions and RBI businesses. The Elsevier and LexisNexis businesses however are expected to be more resilient to the economic slowdown and register modest growth. Management stated that the integration of ChoicePoint Inc. (ChoicePoint) post-acquisition is progressing well. We expect ChoicePoint to report healthy top-line and profitability growth in FY 2009. In addition, the company’s restructuring program is on track to deliver the targeted cost savings and has now been expanded to include the RBI business. We believe that Reed Elsevier’s portfolio restructuring efforts will enable it to curtail costs thereby reinforcing margin and earnings expansion, going forward.

United Microelectronics Corporation (NYSE:UMC) On 08 April 2009 UMC released sales figures for March 2009 registering a 44.5% m-o-m increase in sales compared to a 0.3% m-o-m decline in February 2009, reflecting an improvement in utilization rates and orders from customers. The increase in utilization rate and spurt in demand during the last month of 1Q 09 was primarily due to the current rush in orders from China triggered by the government’s stimulus package announced for consumer electronics products. The current spurt in demand coupled with upward adjustments in the channel inventory has also led to other semiconductor companies raising net sales guidance for FY 2009. In addition, UMC has registered new orders from Silicon Integrated Systems (SiS) Inc., Media Tek Inc, Faraday Technology Corp. and it is also expecting to receive an increase in orders from Advanced Micro Devices, Inc. for its new graphics processor which is slated to launch in 2Q 09. Subsequently, we expect the company to register an increase in its utilization rate in the coming quarters as compared to 1Q 09. However, we believe the current demand spurt is not enough to offset the overall deterioration of the semiconductor industry which is expected to decline 24.1% y-o-y in FY 2009 (source: Gartner Inc.). Subsequently we expect a net sales decline of 29.7% y-o-y in FY 2009. Moreover, despite the cost control measure resulting in an expected reduction in operating expenses on an absolute basis, we expect the contraction in top-line to keep margins under pressure in FY 2009. However, we expect the improvement in end-market conditions to help the company regain profitability from FY 2010.

General Maritime Corporation (NYSE:GMR) Going forward, spot freight rates for oil tankers are expected to continue to suffer from slowing crude oil demand, given the challenging economic conditions. This will impact the company’s top-line performance. On 10 April 2009, the International Energy Agency (IEA) cut its projections for global crude oil demand by 1.0 mn barrels per day (b/d) following a reassessment of global GDP assumptions and the significantly lower-than-anticipated 1Q 09 demand data. Global oil demand is now forecast to be 83.4 mn b/d in 2009, lower than in 2008 by 2.4 mn b/d. The IEA also expects demand for oil to remain weak in 2010 (source: International Energy Agency). If the forecast contraction in oil demand occurs in 2009 as it did in 2008, it will be the first two year contraction in demand since 1982-1983. On 14 April 2009, the US Energy Information Administration (EIA) cut its projections for global crude oil consumption by 0.18 mn b/d to 84.09 mn b/d in 2009, indicating a 1.6% y-o-y decline. However, the EIA expects oil consumption to increase 1.3% y-o-y to 85.22 mn b/d in FY 2010 (Source: EIA). Considering these factors we expect the company’s vessels will generate lower freight rates in the near term. However, since the majority of the company’s Suezmax vessels are operating on time charter contracts, we believe that the company is partially immunized against the current volatility in spot rates. Furthermore, the vessels acquired from Arlington Tankers Ltd. are operating on long term contracts (for four to five years in some cases), which will ensure steady revenues and cash flows over the course of those contracts. We are encouraged by the company’s intention to continue with its dividend policy, despite deteriorating economic and financial market conditions, as we feel this will attract investors to the company’s stock. Overall, despite the various negative factors mentioned above, we believe the NYSE common stock is undervalued at current levels and presents an attractive investment opportunity over our investment horizon.

Nexen Inc (NYSE:NXY) While production from the Ettrick field is expected to come on stream in the next few months and add approximately 10,000 barrels of oil equivalent per day (boe/d) to the company’s total production during 2009. Production at the Longhorn field, which is expected to commence during 2H 09, will add another 50 mn cubic feet per day (mmcfe/d) of natural gas to Nexen’s production levels. During January 2009, the company also increased its stake in Long Lake (a joint venture with OPTI-Canada Inc) from 50% to 65%. Currently the company is able to produce only 20,000 bbls/d (gross) of bitumen from Long Lake, but it is expected to ramp up to full design rates of approximately 72,000 bbls/d (46,800 bbls/d net to Nexen) over the next 1-2 years. Full year operations at Longhorn and Ettrick, coupled with the increase in bitumen production at Long Lake, will spruce up production volumes during FY 2010. However, we expect only a modest increase in production during 2009, coupled with low hydrocarbon prices, to dent the company’s top-line and bottom-line during the year. Therefore, we hold a muted outlook for Nexen’s common stock over our investment horizon, particularly when considering current price levels.

Corpbanca (NYSE:BCA) Chilean GDP contracted by 3.4% in 4Q 08 (compared to growth of 4.6% in 3Q 08), and the central bank (Banco Central de Chile, or BCC) is forecasting that GDP will be flat in 2009, with growth of 3% anticipated in 2010. Meanwhile, CPI inflation has eased from a high of 9.9% in October 2008 to 5.5% in February 2009 and, according to the BCC’s Economic Expectation Survey (March 2009), inflation will fall to an annualized rate of 2.3% in December 2009 and 3.0% in 2010. Lower inflationary pressure and the slowdown in GDP growth have prompted the BCC to lower its Monetary Policy Rate (MPR) by 600 bps, in three stages, to 2.25% as of 12 March 2009. Considering the country’s downbeat economic outlook, we expect credit off-take to decline in the near-to-medium term. In addition, low inflation and MPR cuts are likely to eat into Net Interest Margin (NIM) during FY 2009, before recovery in FY 2010. However, as we expect the company’s exposure to the retail/SME market to grow, and given favorable trends in corporate spreads (foreign lenders have restricted credit, enhancing the company’s domestic market power), we expect the pressure on NIM to be limited. Meanwhile, although we are concerned about ongoing deterioration in asset quality, the company is addressing the issue by focusing on higher-income customers and secured lending in the retail segment, which should limit growth in provisions. We expect provision expenses to stand at approximately 1.35% of total loans in FY 2009, before declining from FY 2010 onwards. This is below our forecast for Banco Santander-Chile, which has a higher concentration on retail lending. Furthermore, although the economic downturn may dent fee income in the near term, there is healthy long term growth potential, given the company’s cross-selling opportunities and the underpenetrated Chilean banking market.

Credit Suisse Group (NYSE:CS) The onset of the global economic downturn has adversely impacted Swiss exports, and the country officially entered a recession in 4Q 08. According to the Secretariat for Economic Affairs (SECO), the Swiss economy will contract by 2.2% in 2009, with growth of 0.1% in 2010 (although the risks are to the downside). Meanwhile, the SNB forecasts a fall of 2.5%-3.0% in 2009 GDP. According to an IMF staff note to a recent G20 ministers’ meeting (Global Economic Policies and Prospects, 13-14 March 2009), the Eurozone economy will contract by 3.2% in 2009 and grow by 0.1% in 2010, while the US economy is expected to shrink by 2.6% in 2009 and grow by 0.2% in 2010. In response to faltering economic growth and the risk of deflation, the SNB reduced its target range for the 3-month Swiss franc Libor by 25 bps to 0%-0.75% on 31 March 2009, and hinted at further rate cuts to 0.25%. Although these cuts should offset some of the downside in the domestic economy, the global slowdown is expected to limit demand for credit in the near-to-medium term. This will have a negative impact.

Tenaris S.A.(NYSE:TS) Going forward, following a sharp decline in global E&P activities, we expect the company to run at lower utilization capacity, resulting in a y-o-y decline in production volumes over our investment horizon. Furthermore, with the worldwide fall in steel prices driving down the company’s product prices, we expect revenues to decline y-o-y in FY 2009 and FY 2010. Although our estimate for FY 2009 revenues show a sharp decline y-o-y, based on the better-than-expected production volumes during 4Q 08 we have revised our FY 2009 production estimates upwards, resulting in a subsequent increase in our top-line estimate. As we expect a recovery in global crude oil prices from FY 2010 onwards, the company will benefit from increasing in E&P activities by oil and gas companies as they capitalize on the increased prices. Furthermore, falling raw material prices and efficient cost control measures by the company will support its operating margins going forward. Overall, we hold a positive outlook for the company and believe the company presents an attractive investment opportunity over our investment horizon.

Arch Capital Group Ltd (NASDAQ:ACGL) Going forward, we expect premium rates to improve in some lines of the US insurance and reinsurance market, following the massive losses triggered by hurricane activities and large investment losses. Global reinsurance prices are up for January 2009 renewals, with the company indicating that its reinsurance business has been supported by “the flight to diversification and the finite capacity availability in the CAT area”. Renewals are expected to remain firm for April and July 2009. However, while this will support top-line to some extent, we believe the negative outlook offered by ratings agencies for the insurance industry, economic recession and a 14.9% y-o-y reduction in the company’s capital in FY 2008 will impose restrictions on the company’s ability to write new business. 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 in particular from S&P’s, A.M. Best and Moody’s is encouraging, with roughly one-third of Arch Capital’s business in reinsurance lines. Arch Capital has a well diversified portfolio of insurance and reinsurance services which we believe establishes a strong risk profile in the event of downturn in any one segment. Overall, with the company continuing to demonstrate sound fundamentals, we view Arch Capital as an attractive investment opportunity at the current price level.

RenaissanceRe Holdings Ltd(NYSE:RNR) Although we are encouraged by the stable outlook for the reinsurance industry given by S&P, A.M. Best and Moody’s, and despite an expectation that hardening of premium rates in some lines will provide a degree of support to top-line, we believe the impact of prevailing economic conditions and the 12.8% y-o-y reduction in the company’s capital in FY 2008 will impose restrictions on the company’s ability to write new business, leading to an overall reduction in business. We are concerned by the possibility of high 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 company’s financial strength (with AA- ratings from S&P’s, higher than peers including Arch Capital and Axis Capital) is a cause for positivity. At current price levels, our overall outlook for the company remains neutral.

Willis Group Holdings Limited (NYSE:WSH) Going forward, we expect the company’s top-line to demonstrate healthy growth following the acquisition of Hilb Rogal and Hobbs Company (HRH) in FY 2008, which has also improved the company’s client retention levels. Growth will be further supported by hardening of premium rates in various classes, partially limited by the weak global economic outlook and some clients opting to reduce coverage. We are encouraged by the company’s strong client retention levels (91% in 4Q 08) and improved productivity (US$16 mn synergies in 4Q 08) arising from the integration of HRH. Although Management expects to realize US$100 mn synergies in FY 2009 and US$140 mn in FY 2010 due to the HRH acquisition, we are concerned about the company’s newly employed long term debt, which will result in higher interest expenses and negatively affect the company’s bottom-line. Overall, our outlook for the company remains neutral.

Lan Airlines S.A.(NYSE:LFL) We expect a relatively steep y-o-y decline in Lan’s total operating revenues in FY 2009, primarily due to an expected deterioration in both passenger and cargo yields and an expected decline in cargo volume, only partially limited by higher passenger traffic as a result of the company’s expanding operations. Overall expected yield decline partially reflects our expectation of the removal of fuel surcharges in the wake of the reduction in fuel prices and a reduction in fares for some routes. However, over 1Q 09, Lan’s passenger traffic increased despite a decline in load factor, primarily due to an increase in passenger capacity in terms of ASK. Going forward we expect growth in passenger traffic to continue despite the impact of current economic conditions, with the company holding a strong local competitive advantage which will be supported by the expansion of operations in Chile, Argentina and Peru in particular, and boosted by the addition of new international routes to the South Pacific and Mexico. In cargo operations, Lan’s volumes in terms of RTK declined over 1Q 09, reflecting decline in load factor coupled with decline in capacity in terms of ATK. This reflects the decline in exports of perishable goods from Chile and Peru. However, going forward, we expect a revival in cargo volume driven by the company’s recent entry into Columbian and European markets, and an improvement in both the passenger and cargo markets to drive revenue growth in FY 2010. The reduction of fuel costs should benefit Lan’s operating margin in FY 2009. Margin is expected to be further boosted by an anticipated decline in wages and benefits expenses reflecting our forecast of a favorable currency impact. We expect the Chilean peso to depreciate relative to the US dollar over our investment horizon, and these costs are reported in US dollars. Lan has also announced that the company will make an investment of US$70 mn to install winglets to a number of its aircraft, which will enhance fuel efficiency. With the exercise expected to be completed during FY 2009, benefits are expected to accrue from FY 2010 onwards. However, the benefit will be limited by an anticipated rise in fuel prices in FY 2010. On balance, we continue to believe that at current levels, Lan’s ADR stock price signifies significant upside potential over our investment horizon.

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