Preparing for decline

     Well-run companies are gearing down for the not-so-brave new world we are moving toward.

     *Citicorp's Eddie Lau reported on a reduced outlook for Kingboard of Hong Kong after he cut the estimate for '08-'10 sharply. Yet the stock remains a buy, trading at HK$13 with his target of HK$24. The yield is 9.3% to boot. But the earlier target was HK$ 50.7.

     Here is the logic. While laminates business will fall (clever of Kingboard to have sold a chunk of that line to the market) its PCB lines will continue to show growth.

     Mr. Lau expects operating margins next year to fall to 14.7% vs earlier estimates of 16.6% (already reduced a bit in his interim report). This is still well ahead of the trough in 2003 when the level fell to 13.7%.

     The company has HK$ 4.5 bn in cash. The capex will be cut to the range of HK$1.5-2 bn vs earlier estimates of 3.5-4 bn. So the cash will last longer. Moreover, he expects a share buyback.

     *Finnish Metso Oy, the leading maker of paper and mining machines, announced a review of acquisition and cap ex plans because of a drop in demand for its products. It also announced a revised stock option program for its brass. 

      CEO Jorma Floranta said "We are prepared to move quickly when needed" in announcing the review of spending plans. It has begun laying off some paper equipment workers in Finland as sales slowed. In Dec. it will create a new energy and environment division. While MXCYY.PK expects slackening demand for papermaking machines, it expects mining machinery sales to be flat but not down. Paper and pulp machiner demand is down in China, one of its largest markets after the U.S. and Finland.

     Its prep for a downturn encouraged the market and the stock rose some; but it is off 75% in Euros this year, and even more off in dollars.

     Metso's Q3 net rose 3.2% to euros 97 mn or 64 euro cents/sh, about $121 mn. It failed to meet analyst estimates reported by Bloomberg. Sales rose 5.2% to euros 1.53 bn.

     The orderbook is ambiguous, including a bunch of deals which in fact have been delayed in Brazil and China. So take that 56% reported gain to euros 2.24 bn with a healthy dose of salt.  

      *Galapagos NV (GLPGY.PK) announed that trials in 200 patients of its Nanocort drug against rheumatoid arthritis demonstrated a decline in symptoms as well as safety. This was the fining of a gold-standard phase 1-2 trial in Nijmegen, Holland. GLPGY is Belgian. The results will be presented today at an American College of Rheumatology Meeting in San Francisco as a late-breaking 'poster'.