This acquisition benefit JOYG by exploiting Wuxi's existing customer base to expand its service and aftermarket competencies while providing higher quality mining equipment to its customers.
Kookmin Bank Upped to Hold
We are raising our rating on Kookmin Bank (KB) to Hold from Sell as the stock has exceeded our target price, which remains $50. KB is expected to report third quarter results in late October. We are retaining our EPADS estimates at $7.55 for 2008 and at $8 for 2009.
We expect pressure on the net interest margin to offset loan growth, with only lackluster earnings growth over the near term. KB reported second quarter net earnings of KRW644 billion, down 10% from the KRW718 billion earned in the prior-year quarter, primarily reflecting higher loss provisions. Plans to convert into a holding company structure appear on track. KB cut its annual dividend by one-third in-line with its strategy to reduce the payout ratio to 30% from 50%.
The bank's profitability measures deteriorated, with return on assets (ROA) decreasing to 1.08% in 2008 s second quarter from 1.41% in the prior-year quarter and return on equity (ROE) slipping to 15.9% from 19.6%. Its asset quality strengthened, with nonperforming loans to total loans falling to 0.66% at June 30 from 0.80% at the end of the year-ago quarter.
On August 14, Kookmin Bank adopted a stock repurchase plan. The company plans to repurchase 16,840,000 shares of common stock (representing 5.01% of the total issued shares of common stock) for about KRW1,000,296,000,000 from August 18, 2008 to November 17, 2008.
WFR Starting to Heat Up
We are reiterating our Buy rating on the shares of MEMC Electronic Materials, Inc. (WFR). The company produces the raw material wafers used by semiconductor manufacturers in the production of integrated circuits (ICs).
WFR presently trades at a multiple of 8.9x our estimate of 2009 earnings (P/E). We expect the firm to outgrow the general semiconductor industry based on its 300 millimeter product line and its solar business. The firm's balance sheet has improved dramatically and cash now stands north of $1 billion. This should pave the way for future share buybacks and potential mergers in the solar industry.
Despite the past two quarters operational mishaps, margins continue to improve. We feel the weaker TSMC capital expenditure numbers are not a sign of weakness, but the situation bears watching. We value the company based on the average of our P/E multiple (26.0x 2009 estimated EPS) and our two stage intrinsic model. The semiconductor group average P/E is between 25x-26x.
