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Sound Global: Smart money is buying.

Sunday, November 4, 2012

On 17 Oct, I mentioned a downside target of 48c for Sound Global's share price. This might or might not materialise. Personally, I am not averse to buying a few bids higher if the technicals tell me that it could be a good idea.


As Sound Global's share price declined, volume has also declined. This picture of a low volume pull back suggests that the selling is weak. Indeed, looking at the MACD, we see a higher low possibly forming. Looking at Chaikin Money Flow, we see how money flow has turned positive even as its share price weakened lately.

Immediate resistance is at 51c while immediate support is at 49.5c.

This is another stock I am accumulating on weakness.


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.
 
(Maybank Kim Eng, 8 Oct 12)

Related post:
Sound Global: Accumulate on weakness.

12 comments:

EY said...

Hi AK,

Seems like you had a hardworking weekend! :)

I agree with your take on Sound Global. I used to be bullish on this counter. Had bought some at 22cts and divested at 38cts. The analysts' argument on it being undervalued has been an age old one. This stock has been listed for quite a long while and it simply beats me that it still priced way below its peers. Is that something which Mr Market knows that we don't?

All being said, I do think that Sound Global is a good investment. I'm looking for a chance to get back into this one.

Just out of curiosity, if you don't mind me asking, what's your portfolio weightage on the China stocks and the income returns from them? Sorry if I sounded too kaypoh. Wanna have an idea if China play reaps better returns as I've some catching up to do, having stayed out of the market for quite a while.BTW, if it's inconvenient to share or too troublesome to compute, it's ok. What you have posted is already more than anyone should ask for. :)

Thanks a bunch!

Cheers,
Endrene

AK71 said...

Hi Endrene,

I guess I was in the mood. Haha.. I will be going away for a while next week and probably won't be able to blog. So, maybe this will make up for my impending absence. ;p

My liaison with Sound Global started in the days when it was known as E-pure. Like you, I got in at 20c and kept selling as its price rose. The last batch was sold at 60c. Then, I watched in dismay as its price touched $1. Hahaha.. ;p

I believe that Sound Global's shares are undervalued because of an aversion to S-chips. People rather stick to Hyflux. The very high premium they pay is for "safety".

My exposure to S-chips is now restricted to China Minzhong and Sound Global. Together, they are less than 10% of my portfolio. The income generated is really negligible. In fact, China Minzhong has not started to pay dividends. I am in these really for potential capital gains. They look promising.

In the last 3 years, my portfolio of S-REITs generated the most income with some capital gains. Now, I am spending more time looking for undervalued stocks which could possibly experience some capital gains. :)

EY said...

Hi AK,

Absence to make our brains grow hungrier? Hahaha...

Hope you'll have good trip! Personally, I don't quite like travelling and the irony is that I hold a job that requires me to do so! Not that frequent, though. Thankfully! :D

Yes, E-Pure. Some fond memories. Thought that was a better name. Sound Global gives the impression of some sonic arts company. Whatever. A rose smells just as sweet by any other name and 会捉耗子的就是好猫!

Thanks for sharing your personal fund allocation on China stocks. Yes, I was thinking of accumulating Sound Global for capital gains too. I like the sector it is in. With increasing pressure and focus on environmental sustainability, growth prospects are promising.

Let's hope the counter pulls back a bit (for our entry) and springs forward with might!

Cheers,
Endrene

AK71 said...

Hi Endrene,

I used to enjoy travelling even if it should be for work. These days, I don't like flying much. I think it is due to age. I much prefer taking a leisurely cruise. :)

I prefer the name "E-pure" as well. Oh well, doesn't really matter, I guess. Just a name.

I don't think Sound Global's shares would decline in price to what E-pure's was in the GFC. Of course I could be wrong but I think buying some now could be a good hedge.

EY said...

Hmm...what is it about age that has to do with travelling? Age is simply an issue of mind over matter - if you don't mind, it doesn't matter. Or so they say! :P

Well, well, I must be in denial. (BTW, I'm just a tad younger than you.) Haha. And yes, many things have to do with age. Like risk-taking, risk-seeking behaviour in investments would likely be tamed by the age 'master'. A good development for anyone's wealth creation journey, I would say.

Okay, back to Sound Global. Yes, I'm certainly going in for a good hedge/hatch! :P

Cheers,
Endrene

AK71 said...

Hi Endrene,

I would like to think that the pain in my knees and back from sitting too long is just a figment of my imagination. I would also like to think that the much longer time I now take to adjust to the time difference between countries is due to something other than age. Haha...

Good luck with Sound Global. :)

Elaine K said...

Hi AK

Just wondering if you have any thoughts or any recent TA on Sound Global since it has touch $0.70!

Any insight will be much appreciated....

AK71 said...

Hi Elaine,

The uptrend is still intact and I am buying more on weakness. I see stronger support at 66c.

Elaine K said...

Thanks for thinking out loud, AK!!

I need to start reading TA for Dummies!!

AK71 said...

Hi Elaine,

That is a very good idea since you have just eavesdropped on a dummy who also read that book. ;p

Mr Chua said...

Ak

It's been almost a quarter and I'm eager to hear your update on this counter.
A search online shows somebody mentioned this counter exhibiting weakness in the mid term.

Eagerly awaiting,thanks
Mr chua

AK71 said...

Hi Mr. Chua,

My views have not changed and I would very much like to accumulate on any weakness. :)

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