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Sound Global: Retest of resistance likely

Sunday, August 5, 2012

On 7 July, I said that the technicals suggested it could be time to sell Sound Global's shares and that if price were to move higher, it would be a slow grind upwards. This picture has, essentially, stayed intact till now as its share price has been stuck at resistance, not being able to move convincingly above 61.5c, a many times tested resistance in the last few months.

Mr. Market is feeling slightly bullish of late and, so, could his attention move to Sound Global?

The company's fundamentals are strong and with sentiments improving, there is a chance that its share price could move higher. A retest of resistance at 61.5c looks likely. However, whether resistance could be taken out would depend on volume which has been rather low.

After 61.5c, the next major resistance is at 68c.

Related post:
Sound Global: Would I buy now?

Sound Global said it has agreed to undertake the second phase to expand the existing capacity as well as to increase the existing discharge standard of the wastewater treatment plant BOT project in Jingbian County, Shaanxi Province, China.


AK71 said...

SGL reported net profit of
RMB 116.9m, representing a 7% y-o-y and 53% q-o-q increase.

Results was driven by an 11% rise in revenue to Rmb740.9m +67% q-o-q).

Gross profit margins were
a shade lower at 29.2%, but management expects this to remain
relatively stable at 30% for the full year.

Slowly but surely. Maintain BUY. TP 86c.

AK71 said...

Sound Global is one of the leading one-stop integrated water and wastewater treatment solutions providers in the PRC. Its services cover the full value chain of water and wastewater treatment, including the design and construction as well as operation
and maintenance of water and wastewater treatment facilities, and the manufacture of water and wastewater treatment equipment.

Water treatment investments are
set to double in the 12th Five Year Plan Period (2011-2015) to
CNY430b in an effort to improve China’s wastewater treatment rate to 85% by 2015, from 77% currently. Commercialisation and privatisation of the Chinese water treatment market is also a long-term trend. With over 20 years of experience, Sound Global has become one of the leading one-stop integrated wastewater treatment solution providers in China, with a respectable market share.

In our view, Sound Global’s revenue will be supported by: 1) continuous order wins thanks to a long-term relationship with the government, and 2) more BOT projects entering their collection period. A hike in water tariffs in China will also have positive effect on revenue.

Although we are positive on Sound Global’s revenue outlook, its high net margin of the past few years would be very hard to maintain, in our view. Recent high-cost borrowing will weigh on the company’s net margin for the next few years, assuming it does not
redeem the senior notes before maturity.

Sound Global is trading at a large
discount to its peers (6.7x FY12PE based on consensus vs average of
12.8x for HK-listed peers and Hyflux’s 16.7x). We currently do not have a rating and target price on Sound Global. However, we think the deep discount may not be justified given Sound Global’s comparable net margin and higher-than-peers ROE. Sound Global is worth considering if investors are looking for cheaper alternatives.

Kim Eng, 8 Oct 12.

AK71 said...

Insider buying:

Wen Yibo has been buying shares of Sound Global from the open market in the past month.

14 Sep 12 +967,000 shares (56.5c per share)

18 Sep 12 +3,033,000 shares (56.5c per share)

11 Oct 12 +1,931,000 shares (52.1c per share)

12 Oct 12 +2,000,000 shares (52.1c per share)

15 Oct 12 +614,000 shares (53c per share)

16 Oct 12 +1,281,000 shares (53.8c per share)

Wen Yibo now holds 56.2% of Sound Global's shares.

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