Earning Release

China Medical Technologies Inc. (NASDAQ:CMED) reported robust revenue growth in 2Q 08, broadly inline with our estimates, primarily attributable to robust sales of ECLIA and FISH diagnostic products. However, margin at operating and net level exceeded our expectations in 2Q 08. Although we expect slowdown in capital spending to marginally impact profitability, associated with the prevailing weakness in the global economy, we believe sale of the HIFU business will allow the company to concentrate on its high margin ECLIA and FISH products, positively impacting revenues and margins, going forward. Consequently, we maintain our positive outlook for the company and reiterate our current BUY rating for the ADR. We are likely to introduce a 6-12 month investment horizon as we now anticipate a significant positive currency impact on the European stock over the medium term2. We maintain our BUY rating for the European stock based on our expectation of a positive currency impact on the European stock over the medium term and our positive fundamental outlook for the company.

News

On 18 December 2008, ASML Holding N.V. (NASDAQ:ASML) lowered its total net revenue guidance for 4Q 08 in view of deteriorating end-market demand and significant reduction in capex plans by its customers. Revenues are anticipated to be significantly impacted throughout 1H 09 as a result of a severe decline in new orders. To hedge against this top-line deterioration the company plans to implement cost saving strategies going forward. The company’s 4Q 08 and 1Q 09 guidance falls significantly below our expectations, and accordingly, we will revise downward our estimates and target price in our next full update report. Subsequently, we downgrade the ASML common stock from a HOLD to a SELL, although the target price derived in our last update report does not suggest a SELL rating. We downgrade the ADR from a HOLD to a SELL based on our fundamental outlook and as we now anticipate a significant negative currency impact on the ADR in the medium term.

Diana Shipping Inc.’s (NYSE:DSX) NYSE common stock achieved our target price on 17 December 2008, which we believe reflects a rise in time charter rates for dry bulk shipping vessels since our last update report. As we expect freight rates to rebound from lows recorded during recent quarters, we maintain our rating for the stock although the target price derived in our 3Q 08 update report no longer supports a BUY rating. Given our positive fundamental outlook coupled with our anticipation of a positive currency impact over our investment horizon, we maintain our BUY rating for the European stock.

Genco Shipping & Trading Ltd.’s (NYSE:GNK) NYSE common stock increased significantly in a single trading session on 17 December 2008 reflecting an increase in freight rates for dry bulk shipping vessels and an increase in the Baltic Dry index (BDI) over the same period. Consequently, we maintain our positive outlook for the company and as we believe that the common stock is undervalued at current price levels, we maintain our BUY rating for the NYSE common stock. Given our positive fundamental outlook for the company coupled with our anticipation of a significant positive currency impact on the European stock over our investment horizon, we maintain our BUY rating for the European stock.

JA Solar Holdings Co., Ltd’s (NASDAQ:JASO) NASDAQ common stock price has appreciated significantly since our last update report dated 11 December 2008, which we believe can be attributed to extreme volatility witnessed in solar stocks over the last few weeks. Given weakness in the solar equipment industry and declining crude oil prices, we downgrade the NASDAQ common stock from a HOLD to a SELL. Despite an anticipated positive currency impact on the European stock over our investment horizon and the stock supporting a BUY at current price levels, we maintain our current HOLD rating for the European stock given our cautious outlook for the solar industry.

Paragon Shipping Inc.’s (NASDAQ:PRGN) NASDAQ common stock achieved our target price on 18 December 2008, which we believe reflects a rise in freight rates for dry bulk shipping vessels. As we expect freight rates to rebound from lows recorded during recent quarters, we maintain our rating for the stock although the target price derived in our 3Q 08 update report no longer supports a BUY rating. We maintain our BUY rating for the European stock given our fundamental outlook for the company and our anticipation of a positive currency impact over our investment horizon.

Satyam Computer Services Ltd.’s (NYSE:SAY) common stock price declined significantly on 17 December, as a result of proposed bids for a construction company and property firm, in which promoters of Satyam, led by the chairman, hold stakes, fueling concerns that Management has violated corporate governance norms. An adverse investor reaction resulted in Management callingoff the acquisition. However, going forward, based on fundamentals outlined in our previous update report, we maintain our BUY rating for the common stock at current levels. Although we anticipate a significant negative currency impact over the medium term, given our fundamental outlook and current price levels, we upgrade the ADR from a SELL to a BUY.

New Valuations

Tele Norte Leste Participações S.A.’s (NYSE:TNE) 3Q 08 net revenues y-o-y growth was driven by its wireless business, offsetting growth from wire-line services. While top-line was slightly above expectations, earnings significantly underperformed expectations due to unfavorable currency movements impacting interest charges. The Wireless services and Data Transmission businesses continue to perform well and the relatively low wireless penetration level in Brazil’s Region I provides a healthy growth opportunity.

AbitibiBowater, Inc. (NYSE:ABH) reported disappointing 3Q 08 results, with earnings, falling well short of our as well as consensus estimates on account of high cost pressure and interest expenses. Revenues increased sequentially due to higher shipments and price realization. Despite a decline in energy related costs from the previous high levels, and other raw material costs, lower price realization in FY 2009 and FY 2010 will negatively impact operating profitability. Given the slump in paper demand and the company’s negative earnings, cost synergies and cost reduction strategies remain crucial for improving AbitibiBowater’s financial health. Given the significant upcoming debt obligations and the possible inability to meet them, our outlook for the company is negative.

StatoilHydro A.S.A. (NYSE:STO) registered strong growth in its 3Q 08 top-line, in-line with our expectation, given rising hydrocarbon prices. Adjusted2 operating margin declined on a y-o-y basis primarily due to rising cost of goods sold given an increase in input costs within its Manufacturing & Marketing (M&M) segment. Going forward, we believe that lower hydrocarbon prices will negatively impact the company’s revenue growth throughout FY 2009. Margins are also expected to be under pressure during the period given lower realized hydrocarbon prices in its Exploration & Production (E&P) segments, which are the major contributors to the company’s overall profitability. However, given our anticipation of a recovery in oil prices in FY 2010, we are confident of an improvement in StatoilHydro’s financial performance in the long term.

Talisman Energy Inc. (NYSE:TLM) registered strong top-line growth in 3Q 08. However, this fell below our expectation given lower than expected realized hydrocarbon prices. Adjusted2 operating margin improved y-o-y with a decline in operating expense and non-cash costs. Going forward, we believe Talisman’s revenue growth in FY 2009 will be negatively impacted by low hydrocarbon prices during the year. This will also keep adjusted operating margin under pressure during the period. However, we are confident of a recovery in hydrocarbon prices in FY 2010 which will support the company’s financial performance during the year. Furthermore, Management is optimistic of an expansion in its hydrocarbon production in the long-run given the strategic restructuring of its asset portfolio undertaken since May 2008.

Shinhan Financial Group’s (NYSE:SHG) 3Q 08 Net Interest Income (NII) was in line our estimate, while bottom-line was below expectations due to a sharp rise in provisions for bad and doubtful debts. The Group’s Non-performing Loan (NPL) ratio remained constant at 1.06%, as an increase in normal loans was accompanied by an increase in substandard and doubtful loans. Going forward, we now expect a reduction in the loan-to-deposit ratio, as deposit growth is expected to outpace credit off-take, with the weakening global and domestic economy expected to limit Shinhan’s ability to expand its loan portfolio, as well as tighten its Net Interest Margin (NIM). However, we believe that the company is fundamentally undervalued at current levels.

Honda Motor Co., Ltd.(NYSE:HMC) Weak vehicle demand and unprecedented strengthening of the Japanese yen against the US dollar and euro has forced Honda to significantly revise downwards its FY 2009 revenue and profitability guidance. Considering the significant downward revision of profit guidance for FY 2009; we have further revised downwards our expectations for the next 2 years. However, Management’s cost reduction initiatives will partially offset the significant pressure on operating performance over the next 2 years.

Intercontinental Hotels Group PLC (NYSE:IHG) experienced y-o-y growth in 3Q 08 revenues from continuing operations, in line with our estimate, reflecting a robust performance in the Franchised segment, primarily boosted by room additions. Adjusted operating margin improved as a result of a decrease in amortization expenses. Going forward, we expect revenues from continuing operations to be impacted by reduced spending on travel across the company’s major geographies as a result of the current global economic downturn. We expect pressure on earnings, as a result of weak revenues. However, as we expect the global economy to stabilize in FY 2010, we expect the company’s performance to improve.

NEC Corporation’s (6701.T) 2Q 09 revenues were in line with our estimate. Revenues declined marginally y-o-y, primarily due to weak performances from the Electron Devices and Others segments. Going forward, we expect the company’s revenue growth to remain under pressure due to the prevailing recession in the Japanese economy (a major revenue contributor) and severe global economic slowdown. In addition, we expect the worsening economic conditions and weak business market sentiments to compel IT and telecommunication companies to significantly lower their capital spending allocations, going forward. Considering the weak market scenario, we believe demand for NEC’s products (IT/Network Systems and Mobile/Personal Solutions) will be negatively impacted over the next 2 years. We also expect margins to remain under significant pressure over the next 2 years.

Banco Bilbao Vizcaya Argentaria S.A. (NYSE:BBV) reported healthy results in 3Q 08, with robust y-o-y growth in Net Interest Income (NII), driven by rising business volumes and interest spreads. Coupled with improvement in cost efficiency, this boosted the bottom-line. Going forward, we expect strong growth in Mexico and Latin America (LatAm) to support NII over our investment horizon. Although we remain concerned about asset quality, we believe that Management’s focus on cutting operating costs will support further bottom-line growth over the next 2 years. Overall, our outlook for the stock remains positive. Therefore, in our view, the recent decline in the common stock price creates an attractive investment opportunity.

Gildan Activewear Inc. (NYSE:GIL) reported healthy revenue growth in 4Q 08 and FY 2008, in line with our estimate, reflecting the impact of the V.I.Prewett & Son, Inc. (Prewett) acquisition, an increase in Average Selling Prices (ASP) and sales volume growth for activewear & underwear. However, margins declined due to rising Selling, General & Administrative (SG&A) expenses. We expect consumer and corporate spending to be severely impacted over the medium term, reflecting deteriorating economic conditions. We expect consumer demand to remain flat, due to rising unemployment levels, impacting top-line in FY 2009. However, the company’s geographical reach and capex plans are expected to support the company through economic downturn.

Australia and New Zealand Banking Group Limited’s (OTC:ANZBY) FY 2008 Net Interest Income (NII) increased by 7.5% y-o-y, beating consensus estimates for the period. However, net income2 was below analyst estimates due to a steep rise in provisions for bad and doubtful debts. Going forward, although the Reserve Bank of Australia (RBA) has been proactive in cutting benchmark interest rates, we anticipate a sharp slowdown in the domestic economy, which will hamper the group’s lending growth. However, while a rising cost-to-income ratio is also expected to negatively impact the bank’s bottom-line in FY 2009, the cost-to-income ratio is expected to ease from FY 2010 onwards. However, Net Interest Margin (NIM) is expected to remain under pressure through the medium term, as borrowing costs are expected to remain high despite easing in monetary policy. Overall, however, we feel these negatives have already been priced in and therefore view the common stock as an attractive investment opportunity at current levels.

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