28 April 2009
Americas
Equity Research
Product Marketing
Swine Flu Outbreak
Research Analysts
Credit Suisse Global Product Marketing
212 538 4442
global.productmarketing@credit-suisse.com
Credit Suisse US Eq. Res
877 291 2683
equity.research@credit-suisse.com
THEME
Assessing the Potential Impact on Sectors &
Stocks
Swine flu has become a growing global concern in recent days, with 75 cases
confirmed by the World Health Organization as of Monday, and hundreds more
suspected. Mexico and the United States are of particular concern, though
cases have also been verified in Europe and others are under surveillance in
Israel, Australia, New Zealand, and Brazil. As a precautionary measure, the
United States has declared a health emergency.
The swine flu outbreak occurs at a critical time for the US economy, which is
just beginning to show faint signs of life from recent data releases. With the
outbreak potentially impacting companies from the Consumer, Health Care,
Industrial arenas and beyond, we thought it was important to check with our
analysts to get their initial impressions on the potential impact to their stocks.
Of note:
■ In Health Care, Gilead should see a benefit from the stockpiling of Tamiflu.
Managed care companies could be negatively impacted as medical costs
increase, while the drug distributors and hospitals could see incremental
revenues.
■ In the Transportation space, a swine flu pandemic would most likely lead to
a slowdown in global trade across the containership and dry bulk shipping
sectors.
■ In the Consumer space, Processed Food companies are in focus as foreign
markets take precautionary measures on inspections of US pork exports. In
Retail, Wal-Mart and Costco have 5% and 3% of total sales in Mexico,
respectively.
■ In Technology, Citrix Systems could benefit as more people work from home
and need remote access capabilities. And semiconductor companies could
be impacted to the extent that a pandemic disrupts normal supply logistics.
Pages 2-5 include a list of our Equity Research analysts' comments on the
impact to their industries and stocks. Beginning on page 6, Global Equity
Strategist Andrew Garthwaite highlights the SARS crisis as the most recent
precedent. During that period, Hong Kong underperformed global markets by
15% and the market’s relative performance did not trough until 2 ½ weeks after
the number of new SARS cases peaked. The worst performing Hong Kong
sectors were travel, hotels, and general retailing.
DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON
TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS. FOR OTHER
IMPORTANT DISCLOSURES, visit www.credit-suisse.com/ researchdisclosures or call +1 (877) 291-2683. U.S.
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28 April 2009
Industry and Stock Commentary
US IMPLICATIONS OF THE SWINE FLU
SUMMARY - SELECT INDUSTRY IMPACT
Potential Upside
Neutral / No Impact
Biotech (GILD)
Software (CTXS)
Specialty Chemicals (MMM)
Drugstores
Hospitals & Labs
Property/Casualty Insurers
Major Pharma
Potential Negative Impact
Managed Care
Commercial Aerospace
Marine Transportation
Credit Cards
Integrated Oils
INDUSTRY & STOCK COMMENTARY
Stocks with
Potential
Positive Impact
Coverage
Universe
Industry Impact
Michael Aberman
Biotechnology
GILD (2.2%);
Swine flu should benefit biotech on a very stock specific basis. GILD will record more
ROG.VX (3.5%);
royalty revenue from Roche with increased stockpiling of Tamiflu. Other companies
GSK.L (3.3%);
with vaccine technologies (BCRX, DVAX, NVAX) stand to benefit as well, although the
BCRX; DVAX;
impact is more weighted to the near term and may be more sentiment driven than
NVAX (% taken
anything else.
from latest Q)
Ralph Giacobbe
Hospitals and labs could see some volume benefit in 2Q. Regardless of whether they
see an impact or not, the perception will be that they will and we expect the stocks to
reflect that. Also of note, the first areas hit were Texas and California where many of
Hospitals and Labs
the public hospitals have exposure. We would highlight Community Health Systems
(CYH), Tenet Healthcare (THC), and Universal Health Services (UHS) as most
exposed to those regions.
Scott Hirsch
Specialty
Pharmaceutical
We expect the swine flu to have minimal impact on the majority of companies in our
space. However if the incidence of swine flu increases significantly, Perrigo could
stand to modestly benefit as it supplies a number of large retailers with private label
cough and cold products.
PRGO
Glen Santangelo
Drug Distributors
Distribution of the vaccine as well as the drugs used to treat the flu would provide a
slight uptick in sales. Do not believe it would have a material impact, but do believe it
would generate some incremental sales.
<1% revs: CAH,
MCK, ABC, HSIC
Gregory Nersessian
Managed Care
Negative. To the extent the swine flu were to result in a broad based increase in
hospital admissions and/or flu vaccine administration, medical costs would increase
and margins would decline. Typically, the flu tends to impact children and the elderly
to a greater degree however the WHO has indicated that the swine flu cases have
appeared almost exclusively in young adults. This would suggest that companies with
commercial exposure could be more at risk than those with Medicare or Medicaid
exposure, though it is probably too early at this time to know that for certain.
Catherine Arnold
Major
Pharmaceuticals
We do not think the swine flu outbreak should have any impact on US Major Pharma
or any of the individual names under our coverage.
Analyst
Stocks with
Potential
Negative Impact
HEALTHCARE
Swine Flu Outbreak
CYH (1.2%
exposure
CA/14.4%
exposure TX),
THC (17.0%
CA/19.3% TX),
and UHS (10.5%
CA/33.9% TX)
UNH, WLP, AET,
HUM
2
28 April 2009
Stocks with
Potential
Positive Impact
Stocks with
Potential
Negative Impact
Coverage
Universe
Industry Impact
Semiconductors
The semiconductor industry has a highly disaggregated and complex supply chain including die production, packaging, test, and foundry services located on a global
basis. To the extent that any pandemic disrupts normal supply logistics all companies
have exposure. 16% of semiconductor production is done in the US, 11% in Europe,
and 73% in Asia. We would note that given current low utilization levels, localized
disruption could be compensated for elsewhere. Of the US semi companies, MU has
significant packaging assets in Puerto Rico (~35%), Intel in Costa Rica (~25%). In
general we find supply disruptions (especially temporary) as weak reasons to sell
stocks. End demand disruptions could be more significant - but we suspect that
demand disruptions in tech would be no different than other areas of the economy with
respect to a swine flu pandemic. In fact, a deepening of the nesting theme we have
already seen occur relative to economic weakness could continue to support
consumer electronic demand like FPDs, Netbooks/Notebooks, and Entertainment.
MU (~35%
exposure to
Puerto Rico),
INTC (~25%
exposure to Costa
Rica)
IT Hardware
All vendors would
likely see some
boost in the
We see three effects from a significant spread of the swine flu, including the disruption percentage of
of supply chains, a temporary increase in the mix of direct (online) purchasing, and a
revenues from
negative impact on high labor content businesses such as consulting. Virtually all of IT direct distribution,
Hardware companies have outsourced manufacturing, so restricted travel and transparticularly DELL.
border shipping would have an impact on goods delivery. Companies that rely on
Again, this could
services revenues would be negatively impacted if swine flu spread in a significant
clearly be
manner. Lastly, if people domiciled, direct and electronic distribution of content and
outweighed by
goods could come into favor. Please note, however, that these impacts would likely
supply chain and
result from a near pandemic scenario and not from merely transitory concerns.
end demand
compression from
a pandemic
scenario.
Virtually all stocks
in our coverage
universe could be
affected by supply
chain issues. IBM
and HP have a
relatively high
portion of revenue
coming from
people-driven
services
businesses.
Paul Silverstein
Communications
Infrastructure
PLCM and
Tandberg
(Telepresence and
To the extent more people work from home outside of the office, it could lead to
high-end
increased network utilization rates, which, if sufficiently prolonged, could drive
videoconference
incremental demand for networking infrastructure. Telepresence and other high-end
systems market).
(i.e., high-def) videoconferencing systems could particularly benefit. We believe,
CSCO
however, that it would take a severe and prolonged epidemic to trump the macro(Telepresence and
economic backdrop to fuel a meaningful uptick in comm infrastructure spending by
indirect impact on
either enterprises or carriers. Please see the Appendix for geographic rev mix (North
its switch and
America v. RoW) for over 50 suppliers of comm infrastructure.
router business JNPR would see
this indirect
benefit as well).
Phil Winslow
Software
Citrix Systems is a software company that could benefit as more people would work
from home and would need remote access. Citrix is a leading provider of
infrastructure software that enables secure access to enterprise applications and
information regardless of location using any device over any connection.
Will Stein
Electronic
Manufacturing
Svcs & Electronic
Components
Many electronics and industrial OEMs have a significant portion (if not all) of their
manufacturing capacity outsourced to global Electronics Manufacturing Services
(EMS) providers. Our analysis of these companies' manufacturing footprint indicates
that approximately 8% of global EMS capacity exists within Mexico (albeit none of it in
Mexico City). We believe much of this capacity is aligned to serve the U.S. consumer
electronics industry. We believe the specific products manufactured in these factories
are skewed to inkjet printer cartridges, handsets, and set top boxes. A shut-down of
these factories, or limitation of these factories to ship product into / out of Mexico,
would meaningfully reduce output of the EMS companies and their consumer
electronics OEM customers.
Bryan Keane
Swine flu may negatively affect the remittance industry by restricting migration and
Computer Services
travel. Lowering of global GDP will affect remittance volumes. Outsourcing/offshoring
& IT Consulting
would be negatively affected by restrictions on travel.
Kulbinder Garcha
Telecom
Equipment
Analyst
TECHNOLOGY
John Pitzer
Bill Shope
Swine Flu Outbreak
Less global travel could bode well for handset manufacturers and suppliers as more
people work from remote locations (beneficiaries: NOK, RIMM, QCOM)
CTXS
WU, GPN (10%),
ACN
NOK, RIMM,
QCOM,
3
28 April 2009
Coverage
Universe
Industry Impact
John McNulty
Specialty
Chemicals
Moderate--for most names in the space there is virtually no impact and for others it
will depend on the severity of the outbreak. The most direct beneficiary is MMM--they
have a respiratory mask business that benefited in 2003 with the SARS outbreak, so
they could see a benefit in one of their divisions. For SEE there may be some
negative impact as they do food packaging (including pork) so if pork sales dip on this,
SEE would be temporarily impacted. ECL--if swine flu results in limited travel this
summer, it could hurt them, otherwise no impact on the name.
David Gagliano
Metals & Mining
If Swine flu crimps global demand, it will hurt the metal equities. Metal prices usually
move in the same direction as global IP growth rates. If Global IP growth rates are
materially impacted by a drastic slowdown in economic activity, it will likely translate
into a more extended period of weak pricing for the metals in general.
Analyst
Stocks with
Potential
Positive Impact
Stocks with
Potential
Negative Impact
MMM
SEE, ECL
MATERIALS
CONSUMER DISCRETIONARY
We believe swine flu would only impact companies with operations in Mexico. Under
our coverage group, this includes Costco and Wal-Mart. Sales trends this past
weekend were almost at the level of a regular weekend for Sam's Club and Wal-Mart
Supercenters. WMT de Mexico still expects to see SSS grow 5% y/y in April. Other
retailers such as Grupo Famsa saw no change in trend and Soriana saw minor impact
in traffic this past weekend. This leads us to believe the swine flu impact has had a
minor impact if any on our companies' sales thus far. But there is a chance that the
negative impact could become more pronounced in the next few days.
WMT (~5% of
total sales in
Mexico)
COST (~3% of
total sales in
Mexico)
Michael Exstein
Broadlines
Omar Saad
Net negative for the industry. We believe the swine flu pandemic creates risks to
sales and to supply chain efficiency for the entire apparel and footwear industry. From
a demand perspective, the disease could potentially discourage consumers from
shopping due to the concentration of crowds in shopping centers. This pandemic could Potential market
Branded Apparel & also cause a shift in traffic patterns toward open air outlet malls (over the more
share gains for
confined traditional indoor malls), which would produce an offsetting sales benefit for
Footwear
RL, VFC, CRI,
companies with large factory outlet operations (RL, VFC, CRI, and PVH). Finally, the
and PVH
spread of the disease in Asia, Mexico, and other parts of Latin America could disrupt
the supply chain and profitability of the entire industry, and this risk seems especially
acute for GIL, HBI, and VFC, which self-operate factories in these regions.
Paul Lejuez
Specialty Softlines
Minimal impact overall. Slightly greater impact on denim focused retailers, as high
quality denim is often sourced in Mexico.
AEO, ANF
Rob Moskow
Processed Food
It is too early to tell whether there will be a negative impact on consumer demand for
pork, but the situation looks OK for now. So far, the international markets are rationally
keeping their channels open to our exports, but taking more precautionary measures
on inspections. Mexico accounts for 14% of U.S. exports and was off to a great start
in 2009. It is hard to see how that pace can continue with the Mexican government
essentially declaring a state of emergency and consumers staying away from
restaurants and public places.
TSN, SFD
Edward Kelly
Modest positive for Drugstores at best. While the market's initial reaction seems to be
that an increase in swine flu incidents should be positive (would drive increased sales
Supermarkets and of antiviral drugs in pharmacy, cold cough and flu medication in OTC, and other
WAG, CVS, RAD
products like surgical masks, antibacterial soap, and disinfectant wipes), we estimate
Drugstores
that the issue would have to escalate to a crisis to provide a meaningful earnings
benefit.
Risks to supply
chain efficiency
most acute for
GIL, HBI, and
VFC
CONSUMER STAPLES
ENERGY
Independent
Refiners
Assuming a moderate scenario in regards to the swine flu outbreak, there would be a
limited impact on the Refiners as jet fuel makes up on average ~9.6% of production.
[Jet Fuel is where the impact will be felt for this outbreak]. However, if the outbreak is
such that air travel comes to a halt, then there would be a much larger (negative)
impact on the refiners as this would lead to higher distillate inventory levels, hence
pressuring distillate cracks. [Distillate makes up ~28% of production].
All Refiners if air
travel comes to a
halt: DK, FTO,
HOC, SUN, TSO,
VLO, WNR
Mark Flannery
Integrated Oils
Assuming a moderate scenario in regards to the swine flu outbreak, there would be a
relatively moderate hit on global economic oil demand, which would probably move in
line with the overall global economy. It may be slightly worse than the market and
underperformance could be expected. The refining segment would be affected as
described in the Independent Refining entry.
All Integrateds
would be affected
Brad Handler
In general, the swine flu will have an impact to the extent that it affects oil
Oilfield Services &
consumption (airline travel). For Services, the swine flu could play a role to the extent
Equipment
that it affects development activity in Mexico.
SLB, HAL, WFT,
BJS, SII
Mark Flannery
Swine Flu Outbreak
4
28 April 2009
Stocks with
Potential
Positive Impact
Stocks with
Potential
Negative Impact
Coverage
Universe
Industry Impact
Moshe Orenbuch
Specialty Finance
We could see (1) Reduced travel sales and commissions for AXP, (2) fewer crossborder transactions and related fees for the credit card networks (V, MA, AXP)
AXP (~20% rev);
MA (~30% rev); V
(~30% rev)
Tom Gallagher
Life Insurance
A pandemic that led to material losses of lives would cause a spike in life insurance
claims and have an adverse impact on life insurers.
All
Vinay Misquith
Minimal impact. Accident and health insurers could have some claims, though we
US Property
Casualty Insurance don't believe it will be material
Analyst
FINANCIALS
INDUSTRIALS
Rob Spingarn
Commercial
Aerospace
Negative impact to the extent that airline capacity is reduced to reflect lower traffic
demand.
Greg Lewis
Marine
Transportation
Negative impact to the whole sector. Would most likely lead to a slowdown in global
trade across the containership and dry bulk shipping sectors. We would expect the oil
trade to remain insulated after adjusting for potential slowdown in GDP.
BA, PCP, COL,
SPR, BEAV, TDG
MEDIA
Spencer Wang, Peter
Stabler, John
Blackledge, Topher
Solmssen
Entertainment,
Little impact expected on media and telecom industries, other than potentially more
Internet,
Cable/Satellite TV, time spent consuming media, especially watching/listening/reading news.
Advertising
GLOBAL IMPLICATIONS OF THE SWINE FLU
Roche/Chugai/Gilead are the most likely to benefit (through increased Tamiflu sales)
although GSK may also gain (through increased Relenza sales). In the longer-term,
companies with pandemic flu vaccine expertise may be able to develop a pandemic
vaccine, and we may also see an increase in overall influenza vaccines. The main
pandemic and seasonal manufacturers are GSK, Sanofi- Aventis and Novartis.
Luisa Hector
Europe Major
Pharmaceuticals
Steve East
We expect to see weakness in stocks exposed to commercial aerospace following the
outbreak of a new swine flu virus in Mexico, US and Canada. The sector was hit hard
by the SARS crisis in 2003 and if this crisis escalates we would be very wary of
sentiment since this could further weaken global air traffic and hit a fragile customer
Europe Aerospace base. Traffic is already tracking at 5-6% down year on year, which if sustained (as we
expect) will make 2009 the worst year for growth in history by a considerable margin
(previous margin was -2.7%). Since we believe there is already over-capacity in
aircraft and a major financing challenge for remaining buyers of new aircraft, further
demand weakness could present additional challenges for the aircraft manufacturers.
Marcel Moraes
Sam Lee
Foong Wai Loke
Sean Quek
Swine Flu Outbreak
Brazil Food
Producers
Slightly negative for Brazilian protein export players. Up to now, there is no way of
knowing if the swine flu will become pandemic. Assuming that it will not contaminate
other animals (poultry and cattle) and considering that pork exports represent roughly
6% to 8% of Perdigao and Sadia's total sales, it should have a marginally negative
impact on results.
Asia Airlines
Since the operating environment is much worse now versus 2003 (SARS breakout), if
we see an outbreak as bad as SARS, the stocks could trade below their historical low
P/Bs. On the other hand, if swine flu does less damage to this region, and the aviation
market bottoms out in 2Q/3Q09 on recovering global GDP, buying opportunities will reemerge.
Asia Resorts
Resorts were relatively unscathed during SARS as Malaysia was relatively unaffected
by the outbreak. Leisure revenues fell 1% YoY, while Leisure EBIT fell 3% YoY.
Resorts' revenues were relatively resilient at the start of the Asian financial crisis,
revenues grew 12.9% in 1997 and 1.8% in 1998 but tumbled 11% in 1999. Should
history repeat itself, the impact of the global economic crisis could again have a lag
effect on Resorts and may cause earnings disappointment later on.
Singapore Market
Strategy
With the SARS outbreak lasting less than four months, the impact on the market was
not very significant. In 2Q03, Singapore GDP contracted 1.6% YoY, versus 1Q's
+3.7% and 3Q's +4.5%. The STI fell 8% during the SARS outbreak from 1,299 to
1,196. This was also because, by the time SARS started, the market has already
collapsed 54% from the peak in January 2000. Currently, the market had lost 52%
from the peak in October 2007.
Roche
(ROGN.VX);
GlaxoSmithKline
(GSK)
EAD.PA, RR.L,
SAF. PA
5
28 April 2009
Global Equity Strategy
Dr. John McCauley, virologist at the National Institute for Medical Research, believes that
the estimate of 120m fatalities from the crisis is "not unreasonable". We have no estimate.
For the record, the Spanish flu pandemic lasted from 1918 to 1920 and killed 50m people,
2.5% of the total population. In the US, 28% of the population was infected and 500k to
675k people died (0.6% of the population). Admittedly, many exceptional factors
contributed to the deadliness of that pandemic, such as mass troops movements,
weakened population post- WWI and limited medical facilities (no nationalised healthcare)
or limited medical know-how (penicillin invented in 1928).
Andrew Garthwaite
44 20 7883 6477
andrew.garthwaite@
credit-suisse.com
The most recent precedent is the SARS crisis. That crisis probably was more of a shock
than the current crisis, as: a) initially nobody knew much about the disease (was it
bacterial or a virus?), b) its mortality rate was extremely high (10% overall, but higher
initially until it was discovered to be a virus; apparently, the mortality rate in the current
swine flu is thought to be 2% - and if caught in the early stages it can be treated.); and c) it
was spreading extremely quickly (moreover, it was the first pandemic scare for a long
time). In total 8,437 people were infected and 813 died from SARS.
According to an October 2008 World Bank study, the economic consequences of a flu
pandemic can be huge. A “mild” pandemic such as the Hong Kong flu of 1968-9, would
reduce global GDP by 2% (4% in a more severe pandemic, such as the 1918-20 Spanish
flu episode). Of the total economic impact, about 12% would result from higher mortality,
28% from illness and 60% from efforts to avoid infection (mainly reduced air travel and
nonessential retail shopping). (We note, however, that the World bank study might be
overestimating the economic impact of a pandemic, given that US GDP was flat between
1918 and 1920, while consumption actually grew by 9.4% in real terms over the same
period). During the SARS crisis, Hong Kong underperformed global markets by 15%
(despite high beta markets outperforming in the aftermath of the Iraqi invasion). More
interestingly, the Hong Kong market’s relative performance did not trough until 2 ½ weeks
AFTER the number of new SARS cases peaked and around 2 MONTHS before the WHO
th
declared that the SARS crisis was contained (which was July 5 although by mid-May the
number of new SARS cases in Hong China had fallen very dramatically as shown
overleaf).
Swine Flu Outbreak
6
28 April 2009
Exhibit 1: Hong Kong relative price performance versus new incidences of SARS in
China
1.95
90
New cases of SARS in China
80
1.9
Hong Kong price relative to world, rhs
70
1.85
60
50
1.8
40
1.75
30
20
1.7
10
0
3/12/2003
3/26/2003
4/9/2003
4/23/2003
1.65
5/21/2003
5/7/2003
Source: © Datastream International Limited ALL RIGHTS RESERVED, WHO, Credit Suisse research
We believe if concerns rose to SARS type levels, which we believe is very unlikely, then
markets could fall 10% to 15%.
th
Sectors: during the first part of the SARS crisis (which we take as the 12 March 2003
th
when the WHO issued a global warning until April 24 ), the worst performing Hong Kong
sectors were travel (which underperformed their global peers by 27%) and hotels (which
underperformed their global peers by 25%) and general retailing (underperformed peers
by 22%).
Exhibit 2: Hong Kong travel & leisure underperformed by 16% during the SARS crisis (it
continued to underperform until the number of new cases had fallen to a quarter of the
peak level). It then outperformed by 12% in the following 2 weeks.
90
0.165
New cases of SARS in China
80
Hong Kong travel & leisure relative to the Hong Kong market, rhs
70
0.16
0.155
60
0.15
50
0.145
40
0.14
30
0.135
20
0.13
10
0
3/12/2003
3/26/2003
4/9/2003
4/23/2003
5/7/2003
0.125
5/21/2003
Source: © Datastream International Limited ALL RIGHTS RESERVED, Credit Suisse research, WHO
Swine Flu Outbreak
7
28 April 2009
Additionally, food producers performed very badly (underperformed by 20%) in spite of
being 'defensive' as investors worried about food and contamination (initially SARS was
believed to be spread by bacteria).
Even real estate stocks underperformed both the market (by 5%) and global peers (by
12%) as end buyers were refusing to visit properties. (Retailing, food producers and travel
and leisure all outperformed by 15%-20% in the two months following the crisis- again
implying that SARS accounted for about 20% off these sectors).
We show in Exhibit 4 the sector performance of Hong Kong sectors relative to their global
peers over the SARS crisis.
Exhibit 3: Hong Kong sector performance (relative to global sectors) during the peak of
the SARS crisis (12 March 2003 to 24 April 2003)
0%
-5%
-10%
-15%
-20%
Hong Kong sectors relative to global sectors, during peak of SARS crisis
-25%
-30%
Forestry & Pap
Electricity
Fxd Line T/Cm
Con & Mat
Chemicals
Oil & Gas Prod
Real Est Inv,Svs
Personal Goods
Gs/Wt/Mul Util
Banks
Inds Transpt
Support Svs
Media
Auto & Parts
General Inds
Financial Svs
Eltro/Elec Eq
Nonlife Insur
Mobile T/Cm
Fd Producers
Tch H/W & Eq
S/W & Comp Svs
Gen Retailers
Hotels
Airlines
Source: © Datastream International Limited ALL RIGHTS RESERVED, Credit Suisse research
The second chart shows sector performance relative to the Hang Seng- basically showing
what was high beta to SARS on the way down was equally the case on the way up.
Exhibit 4: Hong Kong sector performance relative to the Hong Kong market in the two
phases of the SARS crisis
Performance post SARS crisis (24/04 to 5/07)
20
S/W & Comp Svs
Travel & Leis
15
Eltro/Elec Eq
Tch H/W & Eq
10
Auto & Parts
Gen Retailers
Mobile T/Cm
5
Fd Producers
Personal Goods
Financial Svs
Media
Inds Transpt
Oil & Gas Prod
General Inds
Real Est Inv,Svs
0
-5
Nonlife Insur
Performance of Hong Kong
sectors relative to the market
-10
Chemicals
Banks Con & Mat
Gs/Wt/Mul Util
-15
Electricity
Fxd Line T/Cm
Forestry & Pap
Support Svs
-20
-25
-18
-15
-12
-9
-6
-3
0
3
6
9
Performance during SARS crisis (12/03 to 24/04)
Source: © Datastream International Limited ALL RIGHTS RESERVED, Credit Suisse research
Swine Flu Outbreak
8
28 April 2009
The winners were clearly the more defensive sectors: utilities, drugs and telecoms.
The winners would be: drug companies (each $200m of flu related sales is estimated to
add 0.5% to EPS for Roche and GSK by our European drugs team). Recall, European
drugs stocks have a FCF yield of 12.4% (before dividends) and as we highlighted last
week cyclicals since the market low have outperformed by 30%- this is in line with the
normal cyclical outperformance.
Maybe we should also be looking at those companies who would benefit as more people
would work from home.
Certainly over the SARS crisis, many people in Hong Kong were told to work from home
for a few weeks. The beneficiaries of this would be the device manufacturers (PCs,
netbooks- Acer, Dell), smartphone manufacturers (RIM, Nokia, HTC), webcams (Logitech)
and then if the crisis persists the manufactures of the internet/broadband infrastructure
(CISCO, Alcatel, Siemens).
Swine Flu Outbreak
9
28 April 2009
Appendix
Exhibit 5: Communications Infrastructure Geographic Exposure
Data as of the most recent fiscal year
Company
ADC Telecommunications
Adtran
ADVA Optical
Airspan
Alcatel/Lucent
Allot
ARRIS
Aruba
AudioCodes
Aware
BigBand
BlueCoat
Brocade
Ceragon
Ciena
Cisco
Commscope
Ditech
Echelon
Ericsson
Extreme
F5
Harmonic
Infinera
Juniper Networks
Motorola
Netgear
Nokia-Siemens
Polycom
Riverbed
Sandvine
Shoretel
Sonus
Starent
Sycamore
Tekelec
Tellabs
UTStarcom
Veraz
Average
Ticker
ADCT
ADTN
ADV-DE
AIRN
ALU
ALLT
ARRS
ARUN
AUDC
AWRE
BBND
BCSI
BRCD
CRNT
CIEN
CSCO
CTV
DITC
ELON
ERICY
EXTR
FFIV
HLIT
INFN
JNPR
MOT
NTGR
NOK
PLCM
RVBD
SAND.L
SHOR
SONS
STAR
SCMR
TKLC
TLAB
UTSI
VRAZ
Total
Revenues
(million USD)
$ 1,381,600
$
500,676
$
319,787
$
70,351
$ 24,856,860
$
37,101
$ 1,144,565
$
191,012
$
174,744
$
30,516
$
185,293
$
419,353
$ 1,550,680
$
217,278
$
842,432
$ 39,575,000
$ 4,016,561
$
21,299
$
134,047
$ 31,620,435
$
357,417
$
661,558
$
364,963
$
353,426
$ 3,572,376
$ 30,146,000
$
743,344
$ 23,511,135
$ 1,069,320
$
333,349
$
48,327
$
137,388
$
313,642
$
254,075
$
63,188
$
460,564
$ 1,729,000
$ 1,640,449
$
93,433
$173,472,101
North
America /
U.S.
59.0%
94.0%
29.7%
18.0%
28.4%
29.2%
70.8%
48.6%
52.3%
78.9%
91.4%
41.5%
63.8%
9.0%
61.7%
52.7%
47.5%
60.8%
25.0%
8.7%
40.9%
56.8%
56.2%
80.5%
43.1%
49.0%
40.1%
4.6%
53.0%
58.0%
61.4%
94.1%
70.0%
90.7%
65.3%
39.4%
67.6%
61.1%
13.1%
34.2%
Non-North
America /
U.S
41.0%
6.0%
70.3%
82.0%
71.6%
70.8%
29.2%
51.4%
47.7%
21.1%
8.6%
58.5%
36.2%
91.0%
38.3%
47.3%
52.5%
39.2%
75.0%
91.3%
59.1%
43.2%
43.8%
19.5%
56.9%
51.0%
59.9%
95.4%
47.0%
42.0%
38.6%
5.9%
30.0%
9.3%
34.7%
60.6%
32.4%
38.9%
86.9%
65.8%
Source: Company data, Credit Suisse estimates
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Companies Mentioned (Price as of 24 Apr 09)
3M (MMM, $57.00, NEUTRAL, TP $61.00)
Abercrombie & Fitch Co. (ANF, $25.36, OUTPERFORM, TP $30.00)
Accenture Ltd. (ACN, $29.27, OUTPERFORM, TP $42.00)
Aetna, Inc. (AET, $23.96, NEUTRAL, TP $35.00)
American Eagle Outfitters, Inc. (AEO, $15.60, NEUTRAL [V], TP $8.00)
American Express Co. (AXP, $25.30, UNDERPERFORM [V], TP $17.00)
AmerisourceBergen Corp. (ABC, $34.58, OUTPERFORM, TP $48.00)
BE Aerospace Inc. (BEAV, $10.79, OUTPERFORM [V], TP $13.00)
BJ Services Co. (BJS, $14.14, UNDERPERFORM [V], TP $10.00)
Boeing (BA, $38.72, NEUTRAL, TP $40.00)
CA Inc. (CA, $18.13, NEUTRAL, TP $20.50)
Carter's Inc (CRI, $22.46, NEUTRAL [V], TP $19.00)
Cisco Systems Inc. (CSCO, $18.42, NEUTRAL [V], TP $14.00)
Citrix Systems Inc. (CTXS, $25.84, NEUTRAL [V], TP $24.50)
Community Health Systems, Inc. (CYH, $20.04, OUTPERFORM [V], TP $31.00)
Costco Wholesale Corporation (COST, $48.17, NEUTRAL, TP $39.00)
CVS Caremark Corporation (CVS, $29.73, OUTPERFORM [V], TP $32.00)
Delek US Holdings, Inc. (DK, $9.94, NEUTRAL [V], TP $8.00)
Dell Inc. (DELL, $11.05, OUTPERFORM [V], TP $11.00)
Ecolab (ECL, $37.91, OUTPERFORM, TP $50.00)
Frontier Oil Corporation (FTO, $13.47, OUTPERFORM [V], TP $16.00)
Gildan Activewear Inc. (GIL, $12.66, NEUTRAL [V], TP $8.00)
Gilead Sciences (GILD, $45.80, OUTPERFORM [V], TP $54.00)
Global Payments, Inc. (GPN, $30.97, NEUTRAL, TP $32.00)
Halliburton (HAL, $20.01, OUTPERFORM [V], TP $22.00)
Hanesbrands, Inc. (HBI, $14.16, OUTPERFORM [V], TP $15.00)
Henry Schein, Inc. (HSIC, $39.85, OUTPERFORM, TP $46.00)
Hewlett-Packard (HPQ, $35.80, NEUTRAL, TP $30.00)
Holly Corp. (HOC, $21.73, NEUTRAL [V], TP $24.00)
Humana Inc. (HUM, $29.25, OUTPERFORM [V], TP $35.00)
Intel Corp. (INTC, $15.62, OUTPERFORM [V], TP $18.00)
International Business Machines (IBM, $100.08, NEUTRAL, TP $90.00)
MasterCard, Inc. (MA, $173.09, NEUTRAL [V], TP $175.00)
McKesson Corporation (MCK, $35.85, OUTPERFORM, TP $52.00)
Micron Technology Inc. (MU, $4.86, OUTPERFORM [V], TP $7.00)
Nokia Corporation (NOK, $14.00, OUTPERFORM [V], TP $15.60, MARKET WEIGHT)
Perrigo Co. (PRGO, $25.41, OUTPERFORM, TP $26.00)
Phillips-Van Heusen (PVH, $29.19, NEUTRAL [V], TP $20.00)
Polo Ralph Lauren (RL, $53.68, OUTPERFORM [V], TP $50.00)
Precision Castparts (PCP, $73.10, NEUTRAL [V], TP $68.00)
QUALCOMM Inc. (QCOM, $41.36, OUTPERFORM [V], TP $45.00, MARKET WEIGHT)
Research In Motion Limited (RIMM, $68.76, NEUTRAL [V], TP $61.00, MARKET WEIGHT)
Rite Aid Corporation (RAD, $.88, NEUTRAL [V], TP $1.00)
Rockwell Collins, Inc. (COL, $36.54, NEUTRAL, TP $40.00)
Schlumberger (SLB, $48.38, NEUTRAL [V], TP $46.00)
Sealed Air Corp. (SEE, $17.93, NEUTRAL [V], TP $19.00)
Smith International, Inc. (SII, $25.46, OUTPERFORM [V], TP $26.00)
Smithfield Foods (SFD, $10.32, NEUTRAL [V], TP $11.00)
Spirit AeroSystems (SPR, $12.96, NEUTRAL [V], TP $15.00)
Sunoco, Inc. (SUN, $26.79, UNDERPERFORM [V], TP $28.00)
Tenet Healthcare Corporation (THC, $2.11, OUTPERFORM [V], TP $3.00)
Tesoro Corp. (TSO, $15.05, NEUTRAL [V], TP $12.00)
TransDigm (TDG, $36.06, NEUTRAL, TP $33.00)
Tyson Foods (TSN, $10.93, NEUTRAL [V], TP $8.00)
UnitedHealth Group (UNH, $23.06, NEUTRAL [V], TP $25.00)
Universal Health Service (UHS, $43.28, OUTPERFORM, TP $48.00)
Valero Energy Corporation (VLO, $20.74, NEUTRAL [V], TP $22.00)
VF Corporation (VFC, $68.92, OUTPERFORM, TP $60.00)
Visa Inc. (V, $60.38, NEUTRAL, TP $57.00)
Walgreen Co. (WAG, $29.59, OUTPERFORM, TP $32.00)
Wal-Mart Stores, Inc. (WMT, $47.87, NEUTRAL, TP $53.00)
Weatherford International, Inc. (WFT, $17.41, OUTPERFORM [V], TP $16.00)
WellPoint, Inc. (WLP, $40.94, RESTRICTED)
Western Refining Inc. (WNR, $12.97, NEUTRAL [V], TP $10.00)
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Western Union (WU, $17.47, NEUTRAL [V], TP $19.00)
Disclosure Appendix
Important Global Disclosures
The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views
expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her
compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total
revenues, a portion of which are generated by Credit Suisse's investment banking activities.
Analysts’ stock ratings are defined as follows***:
Outperform (O): The stock’s total return is expected to exceed the industry average* by at least 10-15% (or more, depending on perceived risk)
over the next 12 months.
Neutral (N): The stock’s total return is expected to be in line with the industry average* (range of ±10%) over the next 12 months.
Underperform (U)**: The stock’s total return is expected to underperform the industry average* by 10-15% or more over the next 12 months.
*The industry average refers to the average total return of the relevant country or regional index (except with respect to Europe, where stock
ratings are relative to the analyst’s industry coverage universe).
**In an effort to achieve a more balanced distribution of stock ratings, the Firm has requested that analysts maintain at least 15% of their rated
coverage universe as Underperform. This guideline is subject to change depending on several factors, including general market conditions.
***For Australian and New Zealand stocks a 7.5% threshold replaces the 10% level in all three rating definitions, with a required equity return
overlay applied.
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including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Volatility Indicator [V]: A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts’ coverage universe weightings are distinct from analysts’ stock ratings and are based on the expected
performance of an analyst’s coverage universe* versus the relevant broad market benchmark**:
Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months.
Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months.
Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months.
*An analyst’s coverage universe consists of all companies covered by the analyst within the relevant sector.
**The broad market benchmark is based on the expected return of the local market index (e.g., the S&P 500 in the U.S.) over the next 12 months.
Credit Suisse’s distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Outperform/Buy*
36%
(57% banking clients)
Neutral/Hold*
44%
(57% banking clients)
Underperform/Sell*
18%
(48% banking clients)
Restricted
2%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy,
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The following disclosed European company/ies have estimates that comply with IFRS: MMM, THC.
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Americas
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