Earning Release

Signet Jewelers Ltd. (NYSE:SIG) recorded a y-o-y decline in revenues in 3Q 09, reflecting poor performances from the US and UK segments during the quarter. The company also reported an operating and net loss, reflecting a significant increase in administrative expenses. Going forward, we expect Signet’s future performance will suffer from sustained weakness in sales from the US and UK markets as well as intense retail competition in jewelry markets. Therefore, we maintain our HOLD rating for the NYSE stock, even though the target price supports a BUY. As we anticipate a positive currency impact over the medium term, we maintain our BUY rating for the UK stock.

United Utilities Group PLC (OTC:UUGRY) reported modest top-line growth in 1H 09, below our expectation. However, adjusted1 net income was significantly above our expectation. Given current price levels, we do not anticipate a change in our current BUY common stock rating until we reassess the company in our next full update report. We expect to introduce a 6-12 month investment horizon in order to value the company in our next update report, as we now anticipate a significant negative currency impact over the medium term. Therefore, given the significant negative currency impact, we downgrade the ADR from a BUY to a HOLD.

Verigy Limited’s (NASDAQ:VRGY) 4Q 08 results were below our expectations. Moreover, Management’s 1Q 09 guidance also falls short of our previous expectations. Accordingly, we will reduce our estimates and target price when we come to revalue the stock in our next full update report. Hence, we maintain our HOLD rating for Verigy, although the current price suggests a BUY. Despite our weak fundamental outlook, we maintain our current BUY rating for the European stock in anticipation of a positive currency impact in the medium term.

News

Qimonda AG’s (NYSE:QI) ADR appreciated significantly on a single trading day on 25 November 2008, after having declined 64.3% over the previous five trading sessions. The ADR has reported extreme volatility amidst speculation over the company’s survival in very distressed economic conditions. In view of stock price instability and the company’s current weak financial position, we maintain our HOLD rating for the Qimonda ADR, although the current target price supports a BUY rating. We maintain our current HOLD rating for the European stock based on our fundamental outlook for the company despite an anticipated positive currency impact in the medium term.

Shinhan Financial Group’s (NYSE:SHG) common stock price has witnessed a significant decline since our previous company news alert, which we believe reflects negative investor sentiment regarding a rise in provisions related to bad loans as well as turmoil in the global financial sector. Nevertheless, we continue to believe the common stock remains undervalued at current levels. Therefore, we maintain our BUY rating for the common stock. We continue to anticipate a negative currency impact on the ADR over the medium term and therefore, we maintain our HOLD rating although the target price supports a BUY at current levels.

On 25 November 2008, Gerdau S.A. (NYSE:GGB) announced the commencement of maintenance work at two of its subsidiaries, with a view to cut production output, reflecting the slowdown in global industrial production. In light of this, we expect to lower our estimates and target price for Gerdau when we revalue the company in our next full update report. Nevertheless, we expect Gerdau to benefit from higher price realization, given its strong 4Q 08 domestic order book. Hence, we believe the preferred stock is cheap at current levels and maintain our BUY rating. We continue to anticipate a significant negative currency impact on the ADR over our investment horizon. However, in line with our fundamental outlook, we maintain our BUY rating.

O2Micro International Limited’s (NASDAQ:OIIM) ADR price has declined significantly since our company news alert for 3Q 08 results, dated 30 October 2008, reflecting broader weakness in equity markets and semiconductor companies in particular. With the decline in consumer spending worldwide, the company’s end-markets are expected to deteriorate further in the coming quarters, hampering performance. However, the stock price has declined significantly in recent times, which we believe leaves the stock undervalued. Subsequently, we do not anticipate a change in our rating and maintain our current BUY rating for the stock. We maintain our current BUY rating for the Hong Kong stock based on our fundamental outlook. The currency impact on the Hong Kong stock is neutral as the Hong Kong dollar is pegged to the US dollar.

Rio Tinto PLC’s (NYSE:RTP) ADR price declined significantly in a single trading session on 25 November 2008 in response to the withdrawal of a takeover bid from BHP Billiton PLC (BHPB). Going forward, as we expect to lower our estimates and target price in our next update report to account for falling demand and commodity prices, we maintain our HOLD rating for the ADR although the target price supports a BUY. Although we continue to anticipate a positive currency impact on the UK stock over our investment horizon, we maintain our HOLD rating on the UK stock given our fundamental outlook although the target price supports a BUY.

Teekay Corporation’s (NYSE:TK) restated its financial results for 1Q 08 and 2Q 08 to account for derivatives under SFAS 133 on 25 November 2008. However, as we believe that these restatements will not have any significant impact on our estimates and valuation, we maintain our BUY rating for the NYSE stock at current price levels. Given our fundamental outlook and our anticipation of a significant positive currency impact on the European stock over our investment horizon, we maintain our current BUY rating for the European stock.

Yinlgi Green Energy Holding Co. Ltd.’s (NYSE:YGE) ADR price appreciated significantly in a single trading session on 25 November 2008, largely reflecting a rally in global equity indices and solar stocks that have fallen sharply over the last few weeks. Given our cautious fundamental outlook for the company’s future performance, we maintain our HOLD rating until we reassess the stock in our next full update report. As we anticipate a positive currency impact on the European stock over the medium term, we maintain our BUY rating. We expect to revert to a 6-12 month horizon in our next update report as we now anticipate a significant currency impact in the medium term.

The consortium of which Empresas ICA, S.A.B. de C.V (NYSE:ICA) is a member, signed a contract worth MXN9,596 mn to construct the Eastern Discharge Tunnel, which is scheduled to be completed in September 2012. Empresas ICA has a significant share of the total contract value and stands at MXN3.9 mn. This reinforces our belief in the company’s already strong fundamentals, reflected in its healthy construction backlog. Therefore, we maintain our current BUY rating for Empresas ICA’s common stock, until we reassess the company in our next update report. In view of our positive fundamental outlook, we continue to maintain our current BUY rating for the ADR, even though we anticipate a significant negative currency impact on the ADR over our investment horizon.

New Valuations

CNH (NYSE:CNH) reported healthy y-o-y growth in revenues in 3Q 08, primarily driven by strong sales growth in the Agriculture Equipment (AE) segment in 3Q 08. Revenues were in line with our estimates in 3Q 08. We continue to anticipate rising demand for agricultural equipment due to our expectation of increased net cash farm income in the medium term. Furthermore CNH’s new product launches will enable the company to benefit from ongoing growth opportunities in the agricultural market. However, we anticipate negative growth in the construction equipment segment and North America remains a cause for concern in the medium term.

Sterlite Industries (India) Ltd.’s (NYSE:SLT) 2Q 09 revenues were flat against our expectations of a decline. However, EBITDA margin declined y-o-y due to a significant rise in input prices. Nevertheless, adjusted2 net income increased significantly due to a decline in interest expenses and increased other income. Despite the strong 2Q 09 results, we expect a challenging business environment for the company, going forward. Considering the steep decline in metal prices, we have significantly lowered our profitability estimates for FY 2009 and FY 2010. Nevertheless, profitability is expected to improve from FY 2011 after the company starts mining bauxite from its own mines from mid FY 2010.

During 3Q 08, Companhia Vale do Rio Doce (NYSE:RIO) reported strong revenue growth, in line with our estimates, driven mainly by growth in average realized prices, coupled with higher sales volumes. However, with the recent decline in global commodity prices and production volumes, we expect 4Q 08 and FY 2009 revenues and profitability to decline significantly. However, we expect commodity prices to stabilize from FY 2010, which, coupled with an expected increase in production volumes, is likely to improve FY 2010 margins. Moreover, we believe that Vale has a low-cost production structure and healthy financial position which will support capex plans and expect the company to withstand the current slowdown in the economy.

Although BP PLC (NYSE:BP) registered strong growth in its top-line during 3Q 08, it was below our expectation given lower-than-expected levels of hydrocarbon production and lower than expected realized prices within its Exploration & Production (E&P) segment. Adjusted2 operating margin was below our expectation given higher-than-expected purchase costs. BP’s overall margins are expected to remain under pressure throughout FY 2009 given an expected decline in realized hydrocarbon prices within its E&P segment in line with our forecasts. However, we expect hydrocarbon prices to improve in FY 2010 in line with our anticipation of a recovery in the global economy during the year, which will support an improvement in BP’s future performance.

Lan Airlines S.A’s (NYSE:LFL) reported strong revenue growth during 3Q 08, surpassing our estimate given higher than expected growth in passenger and cargo traffic as well as significant increase in yields. Its operating and net income benefitted from top-line growth and a decline in operating expenses. Going forward, revenues are expected to benefit from sustained strength in Lan’s domestic and regional routes given its capacity expansion plans. This is expected to be partially offset at the by a decline in its fuel surcharge and a slowing global economy. However, falling oil prices should support an expansion in margins over the remainder of FY 2008 and into FY 2009, improving its bottom-line over our investment horizon.

During 3Q 08, Agnico-Eagle Mines Limited (NYSE:AEM) reported a y-o-y decline in mining revenues, primarily due to lower zinc price realizations, compounded further by low gold production at LaRonde mines. Furthermore, the operating income declined y-o-y due to higher production expenses. However, 3Q 08 reported net income increased y-o-y due to significant foreign exchange gains. Going forward, we expect the growth in mining revenues to be supported by additional gold production volumes, which are expected to be added by Kittila and Goldex mines, effective from 4Q 08, and Lapa and Pinos Altos, effective from FY 2009. However, profitability is expected to be impacted by the anticipated decline in metal prices, coupled with higher production and tax expenses. Nevertheless, we expect profitability to improve marginally in FY 2010 due to increase in production volumes.

AU Optronics Corporation (NYSE:AUO) reported disappointing 3Q 08 results, with revenues and earnings significantly below our and market expectations. The company’s Average Selling Price (ASP) depreciated significantly, reflecting the ongoing demand-supply imbalance in the LCD panel industry. Going forward, we expect the current global economic environment to negatively impact consumer demand and, therefore, the company’s performance over the near term. Lower ASPs and significant competition in the industry are expected to hinder margin expansion. Therefore, we now hold a muted outlook for the company and have reduced our estimates for FY 2008 and FY 2009.

AXA S.A. (NYSE:AXA) held its autumn investor conference on 25 November 2008, in which Management announced that it expects AXA’s underlying earnings to be in the range of €3.6 bn-€4.0 bn for FY 2008, reflecting the impact of overall weakness in global financial markets on the company’s performance. We expect economic conditions to continue to negatively impact performance in the near-tomedium term. However, AXA maintains that it has a strong capital position and does not need additional capital despite the deteriorating financial conditions. AXA’s indication that it continues to look at options to increase its global presence through strategic partnerships and acquisitions that are not dilutive to shareholders is attractive. Although AXA announced that it has now set aside its “Ambition 2012” targets, it believes that the current environment will allow it to “differentiate itself from competition”. We believe that the recent decline in the common stock price has left the stock undervalued.

In 3Q 08, Embotelladora Andina S.A. (NYSE:AKOa) displayed healthy revenue growth after reporting weak growth in first two quarters, primarily due to increase in volumes of Carbonated Soft Drinks (CSD) from Argentine operations supported by favorable exchange rate movements between Chilean peso and Brazilian real. We expect profit margins to increase in FY 2009 as we anticipate cost of sales, as a percentage of revenues, to decline as we expect commodity prices such as sugar, aluminum and crude to decline and subsequently a decline in raw material prices, which had experienced an increase in recent times. However, beyond FY 2009, we expect margins to display a decreasing trend on anticipated increase in raw material prices.

In 3Q 08, Embotelladora Andina S.A. (NYSE:AKOb) displayed healthy revenue growth after reporting weak growth in first two quarters, primarily due to increase in volumes of Carbonated Soft Drinks (CSD) from Argentine operations supported by favorable exchange rate movements between Chilean peso and Brazilian real. We expect profit margins to increase in FY 2009 as we anticipate cost of sales, as a percentage of revenues, to decline as we expect commodity prices such as sugar, aluminum and crude to decline and subsequently a decline in raw material prices, which had experienced an increase in recent times. However, beyond FY 2009, we expect margins to display a decreasing trend on anticipated increase in raw material prices.

Royal Caribbean Cruises Ltd (NYSE:RCL) an increase in capacity coupled with higher ticket pricing and rising levels of onboard spending supported an increase in the company’s top-line despite a constrained economic environment during 3Q 08. However, a sustained increase in crude oil prices put downward pressure on margins during the quarter. Going forward, although we expect that loadings will slow during FY 2009, the company’s cost saving initiatives and lower fuel prices will partially offset slowed growth in its top-line. The company has revealed that its cost savings program exceeded its anticipated results in FY 2008 and is on track to deliver its expected results in FY 2009. Moreover, fuel prices are at an all time low and are expected to remain at that level throughout FY 2009. Therefore, based on our fundamental outlook and current price levels, we reiterate our BUY rating for the common stock.

Warner Chilcott Ltd. (NASDAQ:WCRX) reported modest revenue growth, in-line with our estimate, driven by strong performance from Dermatology products in 3Q 08. The increasing demand and wider acceptance of Doryx and Taclonex should continue to support revenues in FY 2008 and FY 2009. We believe the successful launch of Taclonex will offset the negative impact of Dovonex patent expiry, while focus on Loestrin 24 FE promotion will offset the Ovcon patent expiry in the medium term. We believe new product launches will increase the company’s market share in the oral contraceptive market. These developments should support strong bottom-line growth over our investment horizon.

Macronix International Co., Ltd. (2337.TW) reported impressive growth in net sales and earnings in 3Q 08 reflecting strong demand across its major product categories. Going forward, although we expect a slowdown in consumer demand and macroeconomic uncertainty to suppress net sales performance in the near term, the company’s cost controls are expected to sustain the improvement in margins made from FY 2007 levels. Moreover, an anticipated recovery in the semiconductor market is expected to support moderate net sales and margin growth in FY 2010.

PartnerRe Ltd’s (NYSE:PRE) adjusted4 total revenues witnessed marginal growth in 3Q 08 and were in line with our expectations. A significant y-o-y increase in total claims and expenses led to a significant decline in adjusted net income, which was nevertheless above our estimate. Although we expect weakness in the US and other advanced economies to limit premium performance, we now expect premium rates in the US to begin to recover following recent hurricane activity, which is also expected to provide some support for insurance and reinsurance services demand. We believe that the company’s fundamental strengths, with stable ratings (A+ from A.M. Best and AA from Fitch), maintenance of dividend payments and strong loss reserves despite the large losses reported during 3Q 08 will help it in the downturn.

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