Everlight Electronics

Skye Chen Taiwan

2393 TT
Change in Recommendation
(886 2) 2175 7052 Technology/Semiconductors 1 July 2008

S O W H A T ? T H E B N P P A R I B A S A N G L E S E C T O R : N E U T R A L

We believe the market will

lean towards our 2H08
outlook after realizing there
is a slowdown in handsets
and 7-inch panel demand.
We are more concerned
than the Street on gross
margin due to inferior
product mix.
Net Profit 08 . TWD1,720m
......................(From TWD2,024m)
Diff from Consensus...(29%)
Consensus (mean) ...TWD2,410m
Consensus (momentum) ..........
Target Price ..... TWD73.40
........................(From TWD128.00)
Diff from Consensus(41.3%)
Consensus (median) ..TWD125.00
Consensus (momentum)...........
Current Price ..... TWD84.20
Upside/(Downside)........... (12.8%)
REDUCE
(From Buy)
Recs in the Market
Positive ........................................8
Neutral .........................................7
Negative ......................................2
Consensus (momentum)...........

Sources: Thomson One Analytics; Bloomberg; BNP Paribas estimates

We downgrade Everlight to a counter-consensus REDUCE with a new Street-low TP of TWD73.40 after revising down its
P/E target to 15x (mid-to-low-end level in the past two years) based on a new 2008 EPS forecast of TWD4.90. Amid
sluggish handset consumer demand, its overall gross margin will dwindle from a less favorable product mix.

Skye Chen (886 2) 2175 7052

Downgrade due to sluggish outlook BNP Paribas Securities (Taiwan) Co Ltd
skye.chen@asia.bnpparibas.com
China handset demand weakens; inferior product mix Chris Lin (886 2) 2175 7056
Our recent channel checks indicate demand for Everlight’s handset BNP Paribas Securities (Taiwan) Co Ltd
solutions will be much lower than we had expected after a significant chris.lin@asia.bnpparibas.com

order cut – as much as 10 to 15% m-m decline from May through July – (Full BNP Paribas technology research team list inside)\
impacted mostly by white-brand handset market in China (as noted in
our report published on 26 June on Epistar “More downside risk ahead; Earnings Estimates And Valuation Ratios
YE Dec (TWD m) 2007 2008E 2009E 2010E
REDUCE” with global our LED demand growth rate reduced to 41% y-y
Revenue 9,853 12,494 13,398 16,119
from 44%). Reported net profit 2,210 1,720 1,648 2,259
Recurring net profit 2,107 1,623 1,548 2,159
Lowering 7-inch panel LED demand Previous rec net profit 2,042 1,925 2,122 2,150
Hurt by the global demand slowdown, LED demand from the consumer Chg from previous (%) 3.2 (15.7) (27.1) 0.4
Recurring EPS (TWD) 6.24 4.62 4.40 6.14
electronic segment – eg digital picture frame and portable DVD with 7-
Previous rec EPS 6.01 5.67 6.25 6.33
inch panel application – has dwindled. Therefore, we trim our 7-inch Rec EPS growth (%) 11.3 (26.0) (4.7) 39.5
panel demand forecast by 7% (equivalent to 1% of the LED global Recurring P/E (x) 13.5 18.2 19.1 13.7
demand) or 2-3% of Everlight’s 2008 revenues (equivalent to 5-7% of Dividend yield (%) 5.1 3.4 2.9 3.6
EV/EBITDA (x) 9.8 11.7 13.1 9.7
2Q08 and 3Q08 sales, respectively). Price/book (x) 3.2 3.0 2.8 2.5
ROE (%) 24.8 17.5 15.2 19.0
Lower 2008 earnings amid global economy slowdown Net debt/equity (%) (9.9) (10.8) (13.0) (15.8)
Hit by weak handset and 7-inch panel demand, we lower our white-light Sources: Everlight Electronics; BNP Paribas estimates

LED (used for handset backlight, flash light, and 7-inch panel) shipment
Share Price Daily vs MSCI
forecast by 7% (2008 annual sales of TWD12.49b from TWD13.71b
(TWD) Everlight Electronics (%)
(down 9ppt)). We also reduce our gross margin forecast to 26.3% and
170 Rel to MSCI Taiwan 40
27.7% for 2Q08 and 3Q08E, respectively, due our expectation of lower
150 30
white-light LED shipments, which have a gross margin of around 30- 20
130
33%, higher than its 1Q08 gross margin of 29.6% and much higher than 10
110
Christmas light LED’s 20%. On back of lower margins in 2Q08 & 3Q08E, 0
90 (10)
we reduce 2008 gross margin to 27.4% from 29.0%. Accordingly, our
70 (20)
2008 EPS forecast has been lowered to TWD4.90 from TWD5.96.
Jun-07 Sep-07 Dec-07 Mar-08 Jun-08
Downgrade to REDUCE Next results/event August 2008
Sales growth disappointment will be due to sluggish handset and Market cap (USD m) 941
12m avg daily turnover (USD m) 23.2
consumer demand in 2Q08 and 3Q08, when its overall gross margin Free float (%) 95
could be hurt by a less favorable product mix. Its share price could Major shareholder Yeah-In-Fu (5%)
stagnate, so we have revised our P/E valuation multiple to 15x (a mid-to- 12m high/low (TWD) 149.00/84.10
ADR (USD) Nil
low-end level in the past two years P/E range of 12-25x). We lower our
Avg daily turnover (USD m) Nil
target price to TWD73.40 and downgrade Everlight to REDUCE from Discount/premium (%) Nil
BUY based on our new 2008 EPS at TWD4.90 estimate. Disc/premium vs 52-wk avg (%) Nil
Source: Datastream

Please see the important notice on the back page.

SKYE CHEN EVERLIGHT ELECTRONICS 2393 TT 1 JULY 2008

China handset demand weakens; inferior product mix

Our recent channel checks indicate demand for Everlight’s handset solutions will be
much lower than we had expected after a significant order cut – as much as 10 to 15%
m-m decline from May through July – impacted mostly by white-brand handset market
in China (as noted in our report published on 26 June on Epistar “More downside risk
ahead; REDUCE” with global our LED demand growth rate reduced to 41% y-y from
44%).

LED demand growth from handsets, contributing 41% of global LED demand, is likely
to fall below our previous expectations of 6-7%, to grow merely 3% in 2008. That is
mainly due to the reduction of global handset shipment growth – down to 10% y-y. In
addition, the number of LED units per handset has been lowered to 6-8 units from the
previous 7-10 units, given brightness enhancement.

Taiwan LED makers should be affected most due to weak demand from the handset
market in China. Handset application contributes 20-25% of Everlight’s total sales, of
which 35-40% are from China. Based on our estimates, the company recovers its
handset-order-loss by fulfilling more Christmas-lighting products, but at a gross margin
much lower – 20-25% vs that of handset at 30%.

Exhibit 1: Estimated Everlight Product Mix In 1Q08 Exhibit 2: Estimated Dynamics Of Everlight Product Mix

Backlight Item 1Q08 2Q08 3Q08E 4Q08E

14% Backlight 15 — —
–— Product mix —–

Consumer/ Automotive 8 —
IT/lighting/
dynamic

Automotive Handset 30 —
others
8% Outdoor display 12
35%
Illumination 3 — — —
Consumer/IT/ 37
lighting/others
Illumination Gross margin estimation (%) 29.6 25.9 26.3 27.7
3% Handset
29%
Outdoor
display
11%

Source: BNP Paribas estimates Source: BNP Paribas estimates

Lowering 7-inch panel LED demand

Hurt by the global demand slowdown, LED demand from consumer electronic segment
has dwindled – including digital picture frame and portable DVD with 7-inch panel
application. Therefore, we trim 7-inch panel demand by 7% (equivalent to 1% of the
LED global demand) or 2-3% of Everlight’s 2008 revenues (equivalent to 5-7% of
2Q08 and 3Q08E sales, respectively).

2 BNP PARIBAS
SKYE CHEN EVERLIGHT ELECTRONICS 2393 TT 1 JULY 2008

Exhibit 3: Estimated Everlight Product Mix In 1Q08

(m units)
Original New
25

20

15

10

0
Automotive Digal picture Pachinko Portable DVD Portable
frame netvigator device

Source: BNP Paribas estimates

Lower 2008 earnings amid global economy slowdown

Impact by the weak handset and 7-inch panel demand, we lower our white-light LED
(used for handset backlight, flash light, and 7-inch panel) shipment volume forecast by
7%. Therefore, we reduce our quarterly sales forecast by 13.3% and 15.0% to
TWD3,380m and TWD3,578m for 2Q08 and 3Q08, respectively, despite some order
loss in the handset segment that should b covered by Christmas lighting. As a result,
our annual sales projection has been lowered to TWD12.49b from TWD13.71b (down
9% points). Furthermore, we reduce gross margin to 26.3% and 27.7% for 2Q08 and
3Q08 due our lower expectation for white-light LED shipment volume, which has a
gross margin around 30-33%, higher than its 1Q08 gross margin of 29.6% and much
higher than Christmas light LED’s 20%. On back of lower margin in 2Q08 and 3Q08,
we revise down our 2008 gross margin forecast to 27.4% from 29.0%. Accordingly, its
2008 EPS is lowered to TWD4.90 from TWD5.96.

Exhibit 4: Quarterly Earnings Revision Comparison

YE 31 Dec (TWD m) –————— Revised –————— –—————— Prior –—————— –————— Change –—————
P&L 1Q08 2Q08 3Q08E 4Q08E 1Q08 2Q08 3Q08E 4Q08E 1Q08 2Q08 3Q08E 4Q08E
Turnover 2,747 2,789 3,380 3,578 2,747 3,048 3,897 4,209 0.0 (8.5) (13.3) (15.0)
Cost of goods 1,933 2,066 2,489 2,586 1,933 2,170 2,747 2,969 0.0 (4.8) (9.4) (12.9)
Gross profit 814 723 891 991 814 878 1,150 1,241 0.0 (17.7) (22.5) (20.1)
GM (%) 29.6 25.9 26.3 27.7 29.6 28.8 29.5 29.5

Employee bonus 0 29 35 37 0 138 176 191 0.0 (79.0) (80.1) (80.5)

Op expense 314 359 378 396 314 425 476 504 0.0 (15.3) (20.6) (21.4)
OE (%) 11.4 12.9 11.2 11.1 11.4 13.9 12.2 12.0
Op profit 500 363 512 595 500 453 674 737 0.0 (19.8) (23.9) (19.2)
OM (%) 18.2 13.0 15.2 16.6 18.2 14.9 17.3 17.5

Non-OP profit (81) 39 49 46 (81) 45 62 65 0.0 (14.1) (20.6) (28.3)

Pre-tax profit 419 402 562 641 419 498 736 801 0.0 (19.3) (23.7) (20.0)

Tax (63) (60) (84) (96) (63) (75) (110) (120) 0.0 (19.3) (23.7) (20.0)
Tax rate (%) (15.0) (15.0) (15.0) (15.0) (15.0) (15.0) (15.0) (15.0) 0.0 0.0 0.0 0.0

Net profit 356 342 477 545 356 424 625 681 0.0 (19.3) (23.7) (20.0)
Net margin (%) 13.0 12.3 14.1 15.2 13.0 13.9 16.0 16.2

EPS (TWD) 1.01 0.97 1.36 1.55 1.01 1.25 1.84 2.01 0.0 (22.1) (26.3) (22.7)
Sources: TEJ; BNP Paribas estimates

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SKYE CHEN EVERLIGHT ELECTRONICS 2393 TT 1 JULY 2008

Exhibit 5: Annual Earnings Revision Comparison

————— Revised ————— ————— Original ————— —————— Diff ——————
Year-end 31 Dec 2008E 2009E 2010E 2008E 2009E 2010E 2008E 2009E 2010E
Profit & loss (TWD m) (TWD m) (TWD m) (TWD m) (TWD m) (TWD m) (%) (%) (%)
Sales 12,494.5 13,398.4 16,119.5 13,705.3 17,418.6 19,771.8 (8.8) (23.1) (18.5)
COGS 9,075.5 9,889.8 11,453.5 9,732.8 12,723.7 14,288.5 (6.8) (22.3) (19.8)
Gross profit 3,419.0 3,508.5 4,666.0 3,972.5 4,694.9 5,483.3 (13.9) (25.3) (14.9)
Gross margin (%) 27.4 26.2 28.9 29.0 27.0 27.7 (5.6) (2.8) 4.4
Operating expense 1,448.4 1,747.5 2,126.5 1,797.4 2,328.4 2,954.5 (19.4) (25.0) (28.0)
Op expense margin (%) 11.6 13.0 13.2 13.1 13.4 14.9 (11.6) (2.4) (11.7)
Operating profit 1,970.6 1,761.1 2,539.5 2,175.0 2,366.5 2,528.7 (9.4) (25.6) 0.4
Operating margin (%) 15.8 13.1 15.8 15.9 13.6 12.8 (0.6) (3.3) 23.2
Profit tax margin (%) 16.2 14.5 16.5 17.4 15.0 13.4 (6.8) (3.6) 23.2
Tax expense 303.6 290.7 398.6 357.2 392.1 397.0 (15.0) (25.8) 0.4
Tax rate (%) 15.0 15.0 15.0 15.0 15.0 15.0 (0.0) 0.0 0.0
Net profit 1,720.2 1,647.5 2,258.9 2,023.9 2,221.9 2,249.7 (15.0) (25.8) 0.4
Net margin (%) 13.8 12.3 14.0 14.8 12.8 11.4 (6.8) (3.6) 23.2
EPS (TWD) 4.9 4.7 6.4 6.0 6.5 6.6 (17.9) (28.4) (3.0)
Sources: TEJ; BNP Paribas estimates

Downgrade to HOLD
Sales growth disappointment will be due to sluggish handset and consumer demand in
2Q08 and 3Q08, when its overall gross margin could be hurt by a less favorable
product mix. Its share price could stagnate, so we have revised our P/E valuation
multiple to 15x (a mid-to-low-end level in the past two years P/E range of 12-25x). We
lower our target price to TWD73.40 and downgrade Everlight to REDUCE from Buy
based on our new 2008 EPS at TWD4.90 estimate.

Exhibit 6: P/E Band Chart Exhibit 7: P/BV Band Chart

(TWD) (TWD)
160 160 5.5x

140 140

120 25x 120

3.5x
100 100
18x
80 80

60 12x 60 2.0x

40 8x 40

20 4x 20 0.5x

0 0
Jan-99 Jul-00 Jan-02 Jul-03 Jan-05 Jul-06 Jan-08 Nov-97 Nov-00 Nov-03 Nov-06

Sources: TEJ; BNP Paribas estimates Sources: TEJ; BNP Paribas estimates

4 BNP PARIBAS
SKYE CHEN EVERLIGHT ELECTRONICS 2393 TT 1 JULY 2008

FINANCIAL STATEMENTS

Everlight Electronics
Profit and Loss (TWD m)
Year Ending December 2006A 2007A 2008E 2009E 2010E
Revenue 7,949 9,853 12,494 13,398 16,119
Cost of sales ex depreciation (5,103) (6,431) (8,776) (9,568) (11,114)
Gross profit ex depreciation 2,847 3,422 3,718 3,830 5,006
Other operating income - - - - - Sales revised down due
Operating costs (836) (969) (1,448) (1,747) (2,126) to weak demand in
Operating EBITDA 2,011 2,453 2,270 2,083 2,879 handset and consumer
Depreciation (270) (390) (299) (322) (340) electronics segments
Goodwill amortisation - - - - -
Operating EBIT 1,740 2,063 1,971 1,761 2,540
Net financing costs 51 35 (177) (10) 6
Associates 229 264 123 75 -
Recurring non operating income 88 - 9 12 12
Non recurring items 90 103 97 100 100
Profit before tax 2,198 2,465 2,024 1,938 2,658
Tax (311) (255) (304) (291) (399)
Profit after tax 1,887 2,210 1,720 1,648 2,259
Minority interests - - - - -
Preferred dividends - - - - -
Other items - - - - -
Reported net profit 1,887 2,210 1,720 1,648 2,259
Non recurring items & goodwill (net) (90) (103) (97) (100) (100)
Recurring net profit 1,796 2,107 1,623 1,548 2,159
Per share (TWD)
Recurring EPS * 5.61 6.24 4.62 4.40 6.14
Reported EPS 5.89 6.55 4.90 4.69 6.43
DPS 3.87 4.26 2.83 2.43 3.01
Growth
Revenue (%) 18.0 23.9 26.8 7.2 20.3
Operating EBITDA (%) 12.2 22.0 (7.4) (8.2) 38.2
Operating EBIT (%) 19.3 18.5 (4.5) (10.6) 44.2 Gross margin revised
Recurring EPS (%) 15.2 11.3 (26.0) (4.7) 39.5
down due to inferior
Reported EPS (%) 16.9 11.1 (25.3) (4.2) 37.1
product mix in 2H08
Operating performance
Gross margin inc depreciation (%) 32.4 30.8 27.4 26.2 28.9
Operating EBITDA margin (%) 25.3 24.9 18.2 15.5 17.9
Operating EBIT margin (%) 21.9 20.9 15.8 13.1 15.8
Net margin (%) 22.6 21.4 13.0 11.6 13.4
Effective tax rate (%) 14.2 10.3 15.0 15.0 15.0
Dividend payout on recurring profit (%) 68.9 68.2 61.2 55.2 49.0
Interest cover (x) na na 11.9 184.8 na
Inventory days 35.2 34.3 33.1 36.2 35.0
Debtor days 95.1 91.4 86.9 92.8 87.9
Creditor days 127.5 109.5 102.0 113.0 109.5
Operating ROIC (%) 53.1 51.7 41.0 31.8 40.2
Operating ROIC - WACC (%) 43.0 41.7 30.9 21.8 30.2
ROIC (%) 30.4 30.0 24.6 19.9 25.4
ROIC - WACC (%) 20.3 19.9 14.5 9.8 15.3
ROE (%) 23.1 24.8 17.5 15.2 19.0
ROA (%) 16.5 17.3 13.1 10.0 12.1
* Pre exceptional, pre-goodwill and fully diluted
Sources: Everlight Electronics; BNP Paribas estimates

5 BNP PARIBAS
SKYE CHEN EVERLIGHT ELECTRONICS 2393 TT 1 JULY 2008

Cash Flow (TWD m)

Year Ending December 2006A 2007A 2008E 2009E 2010E
Recurring net profit 1,796 2,107 1,623 1,548 2,159
Depreciation 270 390 299 322 340
Associates & minorities (229) (264) (123) (75) -
Other non-cash items 78 91 192 231 285
Recurring cash flow 1,916 2,324 1,991 2,026 2,784
Change in working capital (451) (271) (81) (65) (384)
Capex - maintenance - - - - -
Capex - new investment (500) (650) (675) (700) (725)
Free cash flow to equity 966 1,403 1,235 1,261 1,675
Net acquisitions & disposals - - - - -
Dividends paid (1,237) (1,437) (993) (854) (1,058)
Non recurring cash flows - (25) (42) (42) (42)
Net cash flow (272) (59) 199 365 575
Equity finance 0 0 0 0 0
Debt finance (116) (65) (16) (18) (41)
Movement in cash (388) (124) 184 346 534
Per share (TWD)
Recurring cash flow per share 5.99 6.89 5.67 5.77 7.92
FCF to equity per share 3.02 4.16 3.51 3.59 4.77
Balance Sheet (TWD m)
Year Ending December 2006A 2007A 2008E 2009E 2010E
Working capital assets 4,387 4,964 5,880 6,266 7,204
Working capital liabilities (2,936) (3,603) (4,797) (5,567) (6,659)
Net working capital 1,451 1,361 1,083 699 545
Tangible fixed assets 2,061 3,101 4,076 5,098 6,162
Operating invested capital 3,512 4,462 5,159 5,796 6,708
Goodwill 15 15 15 15 15
Other intangible assets - - - - -
Investments 2,934 2,909 2,886 2,863 2,840
Other assets 840 840 840 840 840
Invested capital 7,301 8,226 8,900 9,514 10,403
Cash & equivalents (1,024) (900) (1,083) (1,430) (1,963)
Short term debt - 20 35 50 65
Long term debt * - - - - -
Net debt (1,024) (880) (1,048) (1,380) (1,898)
Deferred tax 162 170 179 188 197
Other liabilities 69 69 69 69 69
Total equity 8,094 8,867 9,700 10,637 12,035
Minority interests - - - - -
Invested capital 7,301 8,226 8,900 9,514 10,403
* Includes convertibles and preferred stock which is being treated as debt
Per share (TWD)
Book value per share 25.29 26.28 27.61 30.27 34.25
Tangible book value per share 25.24 26.23 27.56 30.23 34.21
Financial strength
Net debt/equity (%) (12.7) (9.9) (10.8) (13.0) (15.8)
Net debt/total assets (%) (9.1) (6.9) (7.1) (8.4) (10.0)
Current ratio (x) 1.8 1.6 1.4 1.4 1.4
CF interest cover (x) na na 11.8 197.1 na
Valuation 2006A 2007A 2008E 2009E 2010E
Recurring P/E (x) * 15.0 13.5 18.2 19.1 13.7
Recurring P/E @ target price (x) * 13.1 11.8 15.9 16.7 11.9
Reported P/E (x) 14.3 12.9 17.2 18.0 13.1
Dividend yield (%) 4.6 5.1 3.4 2.9 3.6
P/CF (x) 14.1 12.2 14.9 14.6 10.6
P/FCF (x) 27.9 20.2 24.0 23.5 17.7
Price/book (x) 3.3 3.2 3.0 2.8 2.5
Price/tangible book (x) 3.3 3.2 3.1 2.8 2.5
EV/EBITDA (x) ** 10.5 9.8 11.7 13.1 9.7
EV/EBITDA @ target price (x) ** 9.1 8.5 10.1 11.3 8.4
EV/invested capital (x) 3.6 3.3 3.2 3.0 2.7
* Pre exceptional, pre-goodwill and fully diluted
** EBITDA includes associate income and recurring non-operating income
Sources: Everlight Electronics; BNP Paribas estimates

6 BNP PARIBAS
SKYE CHEN EVERLIGHT ELECTRONICS 2393 TT 1 JULY 2008

BNP Paribas Technology Research Team

Eric Chen
Foundry, IC Design, DRAM
BNP Paribas Securities (Taiwan) Co Ltd
(886 2) 2175 7057
eric.chen@asia.bnpparibas.com
Szeho Ng, CFA
Packaging & Testing, Foundry, Displays
BNP Paribas Securities (Asia) Ltd
(852) 2825 1167
szeho.ng@asia.bnpparibas.com
Peter Yu, CFA
Semiconductors, Displays, Handsets
BNP Paribas Securities Korea Co Ltd
(82 2) 2125 0535
peter.yu@asia.bnpparibas.com

Skye Chen Frederick Wong Nick Ahn

Handsets/LED/DRAM Handsets Downstream Technology
BNP Paribas Securities (Taiwan) Co Ltd BNP Paribas Securities (Asia) Ltd BNP Paribas Securities Korea Co Ltd
(886 2) 2175 7052 (852) 2825 1801 (82 2) 2125 0537
skye.chen@asia.bnpparibas.com frederick.wong@asia.bnpparibas.com nick.ahn@asia.bnpparibas.com

Patty Liu Christie Lai Chris Lin

PC/Downstream Research Associate Research Associate
BNP Paribas Securities (Taiwan) Co Ltd BNP Paribas Securities (Taiwan) Co Ltd BNP Paribas Securities (Taiwan) Co Ltd
(886 2) 2175 7049 (886 2) 2175 7058 (886 2) 2175 7056
patty.liu@asia.bnpparibas.com christie.lai@asia.bnpparibas.com chris.lin@asia.bnpparibas.com

Rick Chen Sara Lim

Research Associate Research Associate
BNP Paribas Securities (Taiwan) Co Ltd BNP Paribas Securities Korea Co Ltd
(886 2) 2175 7065 (82 2) 2125 0541
rick.chen@asia.bnpparibas.com sara.lim@asia.bnpparibas.com

7 BNP PARIBAS
SKYE CHEN EVERLIGHT ELECTRONICS 2393 TT 1 JULY 2008

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Recommendation structure

All share prices are as at market close on 27 June 2008 unless otherwise stated. Stock recommendations are based on
absolute upside (downside), which we define as (target price* - current price) / current price. If the upside is 10% or more, the
recommendation is BUY. If the downside is 10% or more, the recommendation is REDUCE. For stocks where the upside or downside
is less than 10%, the recommendation is HOLD. In addition, we have key buy and key sell lists in each market, which are our most
commercial and/or actionable BUY and REDUCE calls and are limited to at most five key buys and five key sells in each market at
any point in time.

Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility
may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation.

*In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst
doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target
price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current
market price and our assessment of current fair value.

Sector recommendations are based on: OVERWEIGHT – Sector coverage universe fundamentals are improving. NEUTRAL – Sector
coverage universe fundamentals are steady, neither improving nor deteriorating. UNDERWEIGHT – Sector coverage universe
fundamentals are deteriorating.

© 2008 BNP Paribas Group

8 BNP PARIBAS