News

On 08 December 2008, Companhia Vale do Rio Doce (NYSE:RIO) announced that it has shut down 2 more pellet plants in Brazil, in response to a significant fall in demand for iron ore and pellets. This is the latest in a series of production cutbacks (refer to our company news alert dated 05 December 2008). However, we remain optimistic about the company’s strong financial position, and therefore believe that the preferred ADR remains undervalued. We continue to anticipate a significant positive currency impact on the Brazilian preferred stock over our investment horizon. Therefore, we maintain our BUY rating.

Shanda Interactive Entertainment Limited (NYSE:SNDA) ADR achieved our target price of US$27.56 derived in our 3Q 08 update report on 08 December 2008. We believe the appreciation in the ADR price is led by strong fundamentals, outlined in our previous update report. As the current ADR price no longer supports a BUY rating, we are downgrading the rating from a BUY to a HOLD. We reiterate the European ADR a BUY as we continue to anticipate a positive currency impact on the European ADR over the medium to long term.

SkillSoft Corporation’s (NASDAQ:SKIL) NASDAQ common stock has declined significantly since our 3Q 09 update report, which we believe is attributable to negative investor sentiments post Management’s downward revision of FY 2009 revenue guidance impacted by a challenging operating environment led by a global slowdown. However, we believe this decline in the stock price has left the company significantly undervalued and therefore maintain our current BUY rating for the common stock based on its diversified customer-base and worldwide presence, as it makes the company less dependent on any particular customer or sector as well as its efforts to expand in the competitive e-learning market through additional investments in product offerings. As we continue to anticipate a positive currency impact on the European stock over the next 6-12 months, we do not anticipate any change in our current rating for the European stock.

On 09 December 2008, United Microelectronics Corporation (NYSE:UMC) lowered its 4Q 08 guidance, following several other semiconductor companies’ reduction of expectations, citing weaker than previously anticipated demand as a result of global economic recession. Although the revised guidance falls short of our expectations for the quarter, we do not anticipate a change in our current rating since our broad medium term outlook remains unchanged. We maintain our current ADR rating based on our fundamental outlook and anticipation of a negative currency impact on the ADR in the medium term.

Aegon N.V.’s (NYSE:AEG) common stock price reached our target on 09 December 2008. The increase in price reflects optimism regarding the company’s capital position coupled with an improvement in global financial markets. However, at current levels, we believe that the company’s fundamental upside potential has been exhausted. Therefore, we downgrade the common stock from a BUY to a HOLD. We downgrade our rating for the ADR from a HOLD to a SELL based on our fundamental outlook and continued anticipation of a negative currency impact over our investment horizon.

On 09 December 2008, Potash Corporation of Saskatchewan Inc. (NYSE:POT) announced that it will reduce its FY 2009 potash output by 2 mn tons, beginning in January 2009. This move is in response to falling demand. In light of this, we expect to lower our estimates and target price in our next update report. However, we believe that the stock remains oversold at current levels. Therefore, we maintain our BUY rating. We continue to anticipate a significant positive currency impact on the Canadian stock over our investment horizon. Therefore, we maintain our BUY rating.

Semiconductor Manufacturing International Corporation’s (NYSE:SMI) ADR price has appreciated significantly since our 3Q 08 update report dated 01 December 2008. We believe this primarily reflects positive investor sentiment regarding a possible sales boost from the company’s alliance with Datang Telecom Technology & Industry Holdings Co., Ltd. (Datang). However, given ongoing global economic slowdown and uncertainty over the acceptance and full launch of 3G services in China, we remain conservative. We downgrade the SMIC ADR from a HOLD to a SELL since the current price no longer supports our HOLD rating. We downgrade the Hong Kong stock from a HOLD to a SELL based on our fundamental rating. The Hong Kong dollar is pegged to the US dollar; therefore, we do not anticipate any currency impact.

Cemex S.A.B. de C.V.’s (NYSE:CX) ADR stock price achieved our target price on 08 December 2008, following a 28.2% appreciation on the same day. Cemex’s stock price has gained momentum recently, reflecting positive reaction to the company’s efforts to restructure its debt obligations, supported by the US infrastructure stimulus plan. While Cemex is expected to benefit from increased structural spending by the US government, we now hold a cautiously optimistic outlook over the medium term in wake of continued economic uncertainty. Therefore, we moderate the ADR from a BUY to a HOLD, even though the target price supports a SELL. Despite our fundamental outlook, as we expect a significant positive currency impact over the medium term, we maintain our BUY rating for the Mexican stock at current levels, even though the target price supports a HOLD.

Chicago Bridge & Iron Co. N.V.’s (NYSE:CBI) NYSE common stock price has appreciated significantly since our last update report, reflecting volatility in global equity markets and a single day appreciation in oil prices after a prolonged period of decline. However, we believe oil prices will remain at low levels, negatively impacting the company’s revenue growth over the near term. Given the significant appreciation in stock price, we downgrade CB&I’s NYSE common stock from a HOLD to a SELL. Although we anticipate a significant positive currency impact on the European stock over the near term, given the appreciation in stock price since our last update report and fundamental outlook, we downgrade the European stock from a BUY to a HOLD.

Coca-Cola FEMSA, S.A.B. de C.V.’s (NYSE:KOF) common stock achieved our target price on 08 December 2008, reflecting the company’s strong fundamental outlook and an increase of 6.6% in the Mexican BOLSA index over the same period. Going forward, we continue to expect KOF’s revenues to be supported by the acquisitions of the ‘Agua de los Angeles’ jug water business and ‘Refrigerant Minas Gerais, Ltda.’ Furthermore, we believe strong performances from Coca-Cola Zero and all Jugos del Valle brands will continue to drive top-line growth and therefore, we maintain our BUY rating for the common stock, even though the target price supports a HOLD. Although we expect a significant negative currency impact on the ADR over our investment horizon, given our fundamental outlook, we reiterate our HOLD rating, even though the target price supports a SELL.

Infineon Technologies AG’s (NYSE:IFX) common stock price has declined significantly since our previous company news alert, reflecting heightened investor concerns over the company’s liquidity position considering its rapid cash burn and approximately €1 bn requirement to redeem debt due in FY 2010. In addition, the company has guided for a bleak medium term outlook. We expect the stock price to remain volatile in the coming sessions due to the impact of industry slowdown and liquidity concerns, and maintain our HOLD rating for the common stock until we revalue the stock in our next full update report, although the current price supports a BUY rating. We maintain our HOLD rating for the common stock based on our fundamental outlook and anticipated negative currency impact over the medium term.1

Lafarge S.A.’s ( OTC:LFRGY) common stock price has appreciated significantly since our company news alert, dated 20 November 2008, reflecting positive investor reaction to the French infrastructure stimulus package and anticipated similar packages from the US and European Union. While we expect Lafarge to benefit from the impact of increased structural spending on the cement industry, we hold a mixed outlook over the medium term, given the uncertain economic outlook. Therefore, we maintain our HOLD rating for Lafarge’s common stock, even though the target price supports a BUY. As we expect a significant negative currency impact on the ADR over the medium term and given our fundamental outlook, we maintain our current HOLD rating, even though the target price supports a BUY.

Angiotech Pharmaceuticals Inc’s (NASDAQ:ANPI) NASDAQ common stock price increased significantly in a single trading session, ended 09 December 2008. Nevertheless, our outlook for the company remains unchanged and consequently we reiterate our HOLD rating for the NASDAQ common stock. Although we anticipate a significant positive currency impact on the Canadian stock over the medium term, we reiterate our HOLD rating for the Canadian stock based on the fundamental outlook.

Akzo Nobel N.V.’s (OTC:AKZOY) has acquired a 25% minority shareholding in its joint venture company, Akzo Nobel Nippon Paint Holding B.V., giving it a 100% holding in the company and allowing for a merger of itself and its subsidiaries. We will assess the implications of the acquisition after the company discloses the financial details of the deal. Given current price levels, we continue to see potential upside and therefore reiterate the common stock a BUY. Although we continue to anticipate a negative currency impact on the ADR over our investment horizon, we see significant upside potential at current price levels and reiterate the ADR a BUY.

Gerdau S.A.’s (NYSE:GGB) preferred stock achieved our target price on 09 December 2008 as steel prices are expected to increase in the near-term as well as an announcement from the US government of its largest ever public works spending plan. However, given our fundamental outlook, we do not see further upside potential for the preferred stock. Therefore, we downgrade Gerdau’s preferred stock from a BUY to a HOLD. As we continue to anticipate a significant negative currency impact on the ADR over our investment horizon, we maintain our HOLD rating.

On 09 December 2008, Nexen Inc. (NYSE:NXY) released its FY 2009 budget guidance, wherein it expects to invest US$2.6 bn in order to expand its net production approximately 10% y-o-y in FY 2009. Although guidance is below our expectation, our future outlook for the company remains strong given an anticipated increase in production and a recovery in hydrocarbon prices in FY 2010. Given current price levels, we reiterate our BUY rating for the common stock. As we continue to anticipate a negative currency impact over our investment horizon, we reiterate our HOLD rating for the NYSE stock.

Rio Tinto PLC (NYSE:RTP) has announced today that it will cut its capital expenditure by more than half, target a number of its assets for divestment and cut its labor costs given dropping metal prices and in order to cut its net debt by US$10 bn by the end of FY 2009. Going forward, although we expect to lower our estimates and target price in our next update report, we upgrade the ADR from a HOLD to a BUY as we believe the stock is undervalued at current price levels. As we continue to anticipate a positive currency impact on the UK stock over our investment horizon and given current price levels, we upgrade the UK stock from a HOLD to a BUY.

Southern Copper Corporation’s (NYSE:PCU) NYSE common stock has appreciated significantly since our 3Q 08 update report dated 19 November 2008, which includes a sharp appreciation on 08 December 2008 given a surge in copper prices on the same day. As we are cautious of slowing copper prices in FY 2009 given current economic conditions and as current price levels now support a SELL rating, we are downgrading the NYSE common stock from a HOLD to a SELL. As the Peruvian stock trades in US dollars, there is no currency impact. In line with our fundamental outlook, we downgrade the Peruvian stock from a HOLD to a SELL.

The CRH PLC (NYSE:CRH) common stock has appreciated significantly since our 1H 08 update report, driven mainly by positive investor reaction to comments by US president-elect Barack Obama concerning his plans for public works in the country. These are expected to stimulate the construction sector, including leading cement companies such as CRH. Moreover, on 21 November 2008, CRH announced that it had renewed and extended €1.5 bn in debt facilities, contributing to the rally. Despite this news, however, we maintain a cautious outlook for the construction sector in light of the current global economic situation. Therefore, we feel the recent rally has overvalued the stock and downgrade it from a HOLD to a SELL. We continue to anticipate a significant negative currency impact on the ADR over our investment horizon. Therefore, we maintain our SELL rating.

New Valuations

During 3Q 08, The Dun & Bradstreet Corporation’s (NYSE:DNB) revenues reported healthy growth in line with our expectations. Healthy y-o-y growth was driven by the US and International businesses, mainly aided by growth in the Risk Management Solutions (RMS) and Sales and Marketing Solution (S&MS) segments. Adjusted operating income2 was marginally above expectations, while earnings benefited from a lower than anticipated tax charge. Although the current business environment remains uncertain, DNB has adopted several strategic initiatives to continue its growth trajectory, going forward. The company plans to expand its International operations and invest in the high growth Asian markets. Top-line growth is expected to be complemented by increased focus on improving efficiency through leveraging on flexible cost structure. This in turn is expected to reinforce margin expansion.

Patni’s (NYSE:PTI)3Q 08 revenues fell in line with our expectations and marginally above Management’s guidance for the quarter. Earnings however exceeded our estimate mainly on account of taxreview benefits. Patni has released weak top-line guidance for 4Q 08, indicating a sequential decline due to demand uncertainty and a difficult operating environment. On account of low growth visibility, increasing competition within the IT services industry and absence of a growth catalyst, we remain cautious.

The9’s (NASDAQ:NCTY)3Q 08 results were below our and market expectations and reported a significant sequential decline at all levels. As online games are cheaper than conventional forms of entertainment, coupled with rising Internet penetration in the country we expect the online game industry to grow, going forward despite an economic downturn. However we expect margins to be under pressure on account of increased manpower expenses in order to promote games in lower Tier cities.

Magna International Inc’s (NYSE:MGA) 3Q 08 sales underperformed our expectations, primarily due to lower than anticipated sales from its key segments, including North American Production Sales (NAPS) and European Production Sales (EPS). We expect Magna’s sales growth to remain subdued over the next 2 years, considering the anticipated subdued sales growth in its core markets; Europe and the US, in light of recession in these regions. In addition, we believe Magna’s limited customer base will apply further pressure on its sales growth. Moreover, emerging markets such as China and India, which are expected to be key sources of revenues, are now expected to experience a moderate pace in demand for automobiles, associated with the slower economic growth now expected in these regions. We also expect margins to remain under pressure, associated with the subdued revenue growth in FY 2008 and FY 2009. However, we expect partial recovery in revenues and margins from FY 2010 onwards, resulting primarily from improvement in global economic conditions.

During 3Q 08, Mindray Medical International Ltd. (NYSE:MR), reported significant y-o-y increase in revenues, in-line with our estimate, primarily due to high demand for products across all of the company’s segments. We believe the integration of Datascope Corp.’s Patient Monitoring business (Datascope) will continue to support revenue growth over the next 2 years. However, we believe weaker operating performance of Datascope will negatively impact Mindray’s operating margin in the medium term. We believe the company’s margins will benefit from the integration of the two businesses from FY 2010 onwards.

Tyco Electronics Ltd. (NYSE:TEL) reported modest growth in 4Q 08 revenues, in line with our expectations, driven by growth across all business segments. Top-line growth was, however, partially offset by lower product demand from Original Equipment Manufacturers (OEMs), reflecting the slow down in the US and the Western European automotive markets. Operating margin declined due to high cost inflation and was below our estimate. However, net margin exceeded our estimates due to lower tax expenses during the period. We expect challenges in the near-term, anticipating declining revenues and margins in FY 2009, primarily due to slowdown in the US and European automotive markets, lower consumer spending and global economic slowdown. In light of this, we have significantly lowered our revenue and margin estimates. However, we expect revenues and margins to recover marginally from FY 2010, led by economic stabilization.

E.ON AG’s (OTC:EONGY) revenue and margins exceeded our expectations during 9M 08 given higher than expected electricity production volumes and lower than anticipated fuel expenses. The company’s expansion in emerging energy markets, its increasing focus on renewable energy as well as contributions from its recent acquisitions will support growth in its top-line in the near term. In addition, the company’s robust investment plans will support an expansion in its production volumes in the long term.

Today, LG Display Co, ltd (NYSE:LPL) reduced its guidance for 4Q 08, in light of greater than expected decline in shipments of its LCD panels, and lower Average Selling Prices (ASPs) during the quarter. We believe the ongoing weakness in global financial markets will result in a supply-demand imbalance and continued pricing pressure for LCD panels until 1H 09 will negatively impact earnings of the company, until the anticipated recovery in 2H 09. In light of this, we have lowered our revenue and margin estimates of the company for FY 2008 and FY 2009, and now hold cautious outlook for the company. Hence, we downgrade the LPL common stock rating from a BUY to a HOLD over our investment horizon.

Bancolombia S.A.’s (NYSE:CIB)3Q 08 top- and bottom-lines were above our estimates. Along with higher yields and growing net loans, the bank achieved healthy growth in Net Interest Income (NII). Coupled with rising net fee and service income, this drove overall top-line growth. We expect tight monetary policy a slowing Colombian economy to weaken credit growth in the country, going forward, although we expect changes in reserve requirements by the Banco de la República de Colombia (Banrep) to partially alleviate these pressures. Meanwhile, we expect provision expenses to continue to increase, reflecting ongoing (albeit weaker) loan growth, particularly given the increasing focus on retail loans. Despite this, however, we believe that the preferred stock is undervalued at current levels.

ACE Group’s (NYSE:ACE) adjusted total revenues reported healthy growth in 3Q 08 and were in line with our expectations. However, a y-o-y increase in total claims and expenses led to a significant decline in adjusted net income, which was lower than our estimate. We expect premiums to continue to be positively impacted by benefits from the Combined Insurance acquisition and now expect premium rates in the US to begin to recover following recent hurricane activity, which is also expected to provide some support for demand. Although we expect economic weakness to limit top-line performance, we believe that the company’s fundamental strengths, with stable ratings (A+ from S&P and A.M. Best), maintenance of dividend payment in 3Q 08 and the strong capital reserves required to support variable annuity guarantee business, will help it in difficult market conditions.

Companhia de Bebidas das Americas (NYSE:ABV) reported moderate revenue growth in 3Q 08. While operating profit was below our estimate, due to higher Cost of Goods Sold (COGS), adjusted net margin was above our estimate reflecting lower-than-anticipated other operating and tax expenses during the quarter. We expect volume growth to decline in FY 2009 and FY 2010, reflecting the downturn in consumer spending due to the deteriorating Brazilian economy. However, we expect Quilmes Industrial S.A. (Quinsa) to drive revenues, going forward, reflecting increasing demand for alcoholic beverages in the region and expansion of its market share.

Dassault Systèmes S.A.’s (NASDAQ:DASTY) 3Q 08 top-line grew moderately y-o-y, in line with our estimate, driven by recurring revenue growth from its Software business. Operating and net margin witnessed healthy y-o-y growth, reflecting reduced costs and higher financial revenues. Given the company’s 3Q 08 performance, expanding sales channels and extended strategic relationships, we remain positive over the long term. Although we expect top-line to come under pressure, we believe the company’s healthy recurring revenue contribution will enable it to withstand the current macroeconomic headwinds.

Votorantim Celulose e Papel S.A. (NYSE:VCP) reported y-o-y top-line growth, however, operating and net income dropped significantly, and were significantly lower than our expectations, reflecting the higher cost of operations offsetting favorable currency movement. Although higher price realizations offset decline in sales volumes in 3Q 08, going forward, prevailing weakness in the global economy is expected to reduce end-market demand for paper, negatively impacting prices as well as growth performance in the near to medium term. High wood and other raw material costs will continue to drag operating profitability downwards. Nevertheless, at current levels we maintain our positive stance considering the company’s strong position in global markets.

In 3Q 08, Banco Macro S.A.’s (NYSE:BMA) top-line grew robustly, driven by healthy expansion in Net Interest Income (NII). Strong loan portfolio growth was led by private sector loans and personal loans, reflecting healthy demand during the period. Growth in NII was supported by a strong increase in noninterest income, driven by higher fee income from credit card and deposit accounts. We expect a slowdown in GDP expansion to dampen credit growth, going forward, constraining NIM and fee income. We are concerned that the economy could also be negatively impacted by ongoing political uncertainty in the country, which has already led to widespread farmers’ strikes. Nevertheless, private sector demand for credit continues to rise and inflation is easing. Moreover, the government’s ARS13.2 bn stimulus package is expected to lend further support to credit growth, going forward. Considering these factors, we view the common stock as an attractive investment opportunity at current levels.

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