RGA on Hold

Reinsurance Group of America (RGA) second quarter operating results came in at $1.71 per share, versus $1.31 per share in the year-ago period, as all operating segments contributed to solid earnings, with mortality experience rebounding from the 1Q08 level. We remain cautious with respect to the slight increase in sub prime mortgage exposure on a linked quarter basis.

Based on 2Q08 results and prior to the 2Q08 conference call, we are preliminarily adjusting our 2008 and 2009 earnings expectations to $6.00 per share and $6.50 per share, respectively, from $5.65 per share and $6.45 previously. The shares of RGA currently trade at 0.99x its adjusted book value of $45.04 per share per share (before the impact of FAS 115a), and 0.91x its reported book value of $49.13 per share.

We believe this discount to its peer group reflects a previously prolonged string of unfavorable mortality experience in the company's mainstay U.S. operations. However, this negative trend clearly has reversed, with 3Q05, 1Q06 and 3Q06 4Q07 experiencing favorable-to-in line mortality in the U.S operations and coupled with healthier growth prospects in non-North American businesses than experienced by many of its peers. This should provide a catalyst for multiple expansion and upside in the stock over time.

Our revised six-month price target of $48.00 per share incorporates a multiple of 1.0x our estimated adjusted book value of $48.00 per share at December 31, 2008, for a 7.1% total return potential (7.5% capital appreciation + the current dividend yield). Therefore, we maintain our Hold rating on the shares of Reinsurance Group of America.

Great Avenues for SOHU

Sohu.com Inc. (SOHU) is a leading online brand in China. The company reported blockbuster financial results for the first quarter of 2008. Both the company's revenue and earnings were significantly higher than market expectations because of strong growth in online games.

Gross margin of 76% in the first quarter of 2008 increased from 71% in the previous quarter. Online game revenues were US$41.0 million, up 24 times year-over-year and 71% quarter-over-quarter. In addition, brand advertising revenues were US$33.2 million, up 41% year-over-year and 3% quarter-over-quarter.

Although the company faces fierce competition from different fields - including brand advertising, online game, wireless value added services, and search - the company manages to be a main player in almost each field. We believe SOHU should show strong growth momentum in the next few quarters.