Sound Global: Strong growth ahead (BUY)

From DMG:

Sound Global: Strong growth ahead (BUY, S$0.84, TP S$1.05)

Selena Leong (6232 3898, selena.leong@dmgaps.com.sg )
Terence Wong, CFA (6232 3896, terence.wong@dmgaps.com.sg )

Sound Global’s (SG) 3Q10 earnings slumped 51.5% YoY, which was in line with our estimates.

This was attributable to higher effective tax rates, IPO expenses and FX losses. While we remain confident of order books’ sustainability, we trimmed earnings downwards (-7.3% in FY10 and -
4.6% in FY11) to factor in the higher effective tax rates and expenses.

Maintain BUY as its cash will be invested into BOT projects, providing recurring steams of revenue. Our revised TP is
S$1.05, based on 14x FY11 earnings – at least a 40% discount to its China peers.

3Q10 earnings within expectations. SG’s earnings came in at RMB60.6m for the quarter, down 51.5% YoY, despite a 8.8% YoY growth in revenue. This was attributable to higher effective tax
rates, IPO expenses, employee stock options expenses and FX losses. 3Q10 revenue hit RMB570.4m, boosted by maiden contribution from the Saudi Arabia project, as well as higher
contributions from the Manufacturing (higher sales from customised equipment), Turnkey Services and Operation and Maintenance segments.

Strong balance sheet.

SG is in a net cash position of RMB0.61 per share (~14% of share price). It has recently raised RMB885m from the placement of 6% USD convertible bond due 2015 and secured a loan of US$34m from International Finance Corporation (IFC). An MOU was signed for
an additional US$36m of credit from IFC and SG has also secured a US$600m credit line from China Merchant Bank. This puts to rest fears that SG may not be able to obtain sufficient funding
for its wastewater treatment EPC projects’ working capital needs or its investments into the more capital intensive BOT projects, amidst the credit tightening situation in China.

Earnings revised downwards, new TP of S$1.05. While we expect projects flow to remain strong (evidenced by the recent contract win of a 60,000 tons/day BOT project in Hongze County, in
Jiangsu province), we have adjusted our FY10 and FY11 earnings downwards by 7.3% and 4.6%
respectively, to factor in a higher effective tax rate and higher expenses. Applying a P/E of 14x to
FY11 earnings, we derive a new TP of S$1.05 (previously S$0.93).

Dun be a kancheong spider and  follow herd mentality... when good buy see drop.. balls also drop dare not buy... den when see later up... regret nvr buy....

A trader never fears...

Remember wat Warren Buffet said: "Buy when there is fear, sell when there is greed"...

Read today's Sunday Times "Invest pg 29":

To make money, fight 'fleeing instinct'... "The urge to cut loss when stocks fall works against 'buy low, sell high' tactic"....

Kateks going to die pain pain, short-covering n they will panic, push higher the price...

30-Nov-2010 22:06:16

SOUND GLOBAL TO UNDERTAKE BUILD, OPERATE AND TRANSFER

PROJECT IN LIAONING PROVINCE, PRC

The Board of Directors of Sound Global Ltd. ("Sound Global" or the "Company")wishes to announce that it has signed another contract with respect to a wastewater recycling project in Haicheng, Fushun City, Liaoning Province, in the PRC on 30 November 2010. The project has a designed treatment capacity of 80,000 tonnes of wastewater per day. The investment will be undertaken under the Build, Operate and Transfer ("BOT") format with a concession period of 30 years. The estimated total investment of the project is approximately RMB88 million (US$13.2 million) and the tariff charged for the service rendered is RMB1.50/tonne. The project aims to provide services to entities such as power generation plants in Fushun and create a green city through optimizing the use of water.

Sound Global’s Executive Chairman, Mr Wen Yibo (•¶ˆê"g), said: "the successful bid of this contract highlights Sound Global’s integrated advantages in capital, technologies and project implementation in the industry, particularly in wastewater treatment. Upon completion, the project will enhance the level of water recycling and increase the supply of water in Fushun. It will also promote the environmental protection of the region."