New Valuations

AngloGold Ashanti Limited(NYSE:AU) The company has revised its FY 2009 production outlook downwards to 4.55 mn – 4.6 mn oz, compared to earlier guidance of 4.7 mn – 4.8 mn oz, due to ongoing safety problems in South Africa. Despite this, we have marginally revised our FY 2009 revenue estimates upwards, based on our expectations of higher international gold prices. The company expects its gold price realisation to be at an approximately 7% discount to international gold prices. Over a longer term horizon, the company has set a production target of 6 mn oz per annum by FY 2013, which will benefit its top-line over the same period. On the cost front, the company expects to incur total cash costs of US$590 per oz in 4Q 09, based on higher electricity prices. Although higher costs expected in 4Q 09 will weigh on the company’s operating margin in FY 2009, we have raised our margin estimates for the year given lower- than-expected cash cost incurred by the company in 3Q 09. At the current prices levels, we believe the company’s ADR is over valued and hence maintain our SELL rating on the same.

Sohu.com Inc(NASDAQ:SOHU) The company reported mute growth in advertising revenues due to a recovery online advertising. However growth in revenues from the Online game business remained steadfast. Mute growth in advertising revenues is attributable to the company's inefficiency in capitalizing on opportunities in the reviving online advertising market in China. At the same time, on account of increasing competition, Sohu seems to have lost some market share. However fundamentally, the online advertising market has witnessed an increase in the last quarter. According to Management, China's automobile industry, which is the world largest and rapidly growing, has witnessed a revival and is expected to drive the online advertising industry. Sohu's investment in content and technology along with strong brand positioning during the quarter has attracted new users to Sohu. In addition the company's investment to expand its existing high definition video content offerings is set to support advertising growth. The company, which has a leading position in this stream has witnessed a sequential 125% growth in the number of average daily video viewers in 3Q 09. Recently the company officially launched its newly updated travel channel, travel.sohu.com, which is expected to attract online advertisers. In the Online game segment, Sohu gave conservative guidance as a result of the subdued response to the TLBB upgrade. At the same time, Sohu licensed one of the top new 3D martial art games in Taiwan – Zhong Hua Ying Xiong, which is expected contribute marginally to revenues. Hence with TLBB (the major revenue contributor) loosing traction, growth from Sohu's online game business is expected to slow. The company's steps towards starting in-house 3D development will ensure long term growth in the game business. However, the company's operating expenses are steadily increasing, which could limit growth in earnings. Hence taking into account the recent slowdown witnessed by both the advertising and online game businesses coupled with weak 4Q 09 guidance, we have reduced our target price for the ADR. However, considering long term growth prospects of the company, at current levels we maintain our BUY on the stock.

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