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Sound Global's share price is currently at an important support level. This approximates 49.5c.
I am once again a shareholder of the company with a long position at 50c. I bought some shares towards the end of the day when I saw how the support seemed to be holding up.
Make no mistake, Sound Global's stock is in a downtrend but share prices go down a river of hope and hardly in a straight line. Although no one can say that the stock has bottomed, it could be that it has found a floor.
I see a higher low in the CMF even as share price dipped lower. We see a positive divergence. The MFI does not spot a higher low but it has just dipped into oversold territory. We could be seeing some buying activity as the stock becomes oversold with volume increasing today.
A short white candle with a lower wick formed today. Although not strictly a hammer, after yesterday's black spinning top, this is a promising sign that the downtrend has weakened and possibly coming to a halt. This short white hammer is a reversal signal which would need confirmation tomorrow.
Fundamentally, I like the company's business. I am concerned about its higher financing cost but in spite of this, it is still a very profitable company with very good prospects. The selling down of its stock might have been overdone by Mr. Market.
In fact, EPS is likely to improve in 2013 because of a very strong order book. With China bent on improving water and sewage infrastructure, I expect Sound Global to be a logical beneficiary. Trading at a PE of less than 10x, Sound Global's stock is inexpensive.
With the stock currently in a downtrend, however, for anyone buying on dips, adopting a trading mentality could be more rewarding.
Related post:
Sound Global: Lost 17.2% in a day.
Bloggy Award
49 comments:
Hahaha good to see you coming back into this counter. After tasting sweetness in both your Chinese counters, the other being cmz, I am looking into other Chinese counters with low PE and good business fundamental. So far I had found two that I like.
Keep up the good work, AK!!
Mr. Market had too much bad experience with S-chips in the past. Personally, I got burnt before by a few as well. :(
I guess the trick is in trying to separate the good from the bad which is by no means a scientific process. It remains tricky.
So, which other two S-chips are you vested in now? ;)
Hi AK,
I am holding Dukang right now.
Hold steady at 32-34 cent:)
Hi yeh,
I seem to remember that it is a beverage company. I am not sure. Don't know much about it.
Want to share the reasons for investing in Dukang? :)
Hi AK,
Just sharing. Not vested yet.
Though that the Revenue and Profit has increase last 3 years, but the Account Receivable is also increase tremendously
2012.....2011.....2010
1,433...1,120.....808 (RMB M)
There is potential risk of bad debt of > RMB 100M.(receivable aging 1-2 yr)
As a result, its cashflow for last 3 years is -ve.
If company write off this 'bad debt' then it will impact fy2013 profit.
Hi RayNg,
Yes, we have to keep an eye on cash flow. Now, I guess we can only wait and see.
For sure, the sudden departure of their CFO not too long ago did not inspire confidence.
Hi All,
I will prefer AEM Holding... stock price now is 9 cents. NTA is 16 cents. Most of the market capitalization are in CASH.
The company is in the mist of ramping up of its substrate line.
- AEM is investing in a new substrate line at MCT and will use some of the proceeds from the sale of the 42.3% stake to SPIL for this project. Initial production should start in early 2013 with commercial production commencing and contributing if there are no execution hiccups in the second half of 2013.
- the 500,000 tonne substrate line at MCT can be expected to generate revenue of S$40-50mn when fully operational.
Dividend yield is about 3.8%
Hi Yee,
Thanks for sharing.
I did a quick search and read up on the company. Its fortune is closely tied to that of the semi-con industry; this industry is not one I find easy to understand and I have been burnt more than once. :(
Hi AK,
Can understand... i was previously burned badly for investing in Flextech which was one of the world most promising company too....
The few things that i like about the company after reading their 2012 result are;
1) The Group is in the process of qualifying these next generation
substrates and performing trial production runs with several customers. We will continue to ramp up capacity in 1H2013 as more customers are qualified and starts
production. Resulting from the launch of these new substrates programmes the Group expects to see higher revenues in 2H2013 compared to 1H2013.
2)For the Group's equipment business,our next generation programmes "developed with a major customer" will still take a few
more quarters to reach the mass production stage. Current low volume units are being field tested at the customer's production sites.
3) Cash and cash equivalents stood at $39.6 million vs Market Capitalisation of $40.4 million.
4) Financing expenses fell by 86.6% from $157,000 in 4Q2011 to $21,000 in 4Q2012(Low debt)
Regards
Yee
Hi RayNg,
I was previously also invested in Dukang...
The thing that i don't like about this company is their cash onhand look significant but they haven't been paying out any dividend. Coupled with the departure of CFO as well as change of auditor (if i can remember correctly). Too many red flag for me.
On paper wise, it definitely look very undervalued, that is if the cash is real and the account is real.
Regards
Yee
Hi Yee,
Points 3 and 4 suggest a stronger book. This is reassuring.
Point 2 is probably very much work in progress and we will wait to see how that pans out.
Point 1 is probably the closest to a near term catalyst. It all hangs on the execution, I suppose.
Although there seems to be value here, whether it would translate into a higher share price is not as easy to see.
I think we need quite a bit of faith in the management and intimate knowledge of the industry here to make the right call. This is also because the semi-con industry is a fiercely competitive and cyclical one.
Through several attempts to invest in semi-con related counters, I think I do not have what it takes to be a confident and successful investor here. I had lost quite a bit of money and never made any.
So, best that I avoid it for a peace of mind. :)
AK
i m looking at china fish and sinograndnes. bought into china fish after its recent right issue. i like tis counter for its ambitious plan and low valuation, ie PE 10 and price/NAV at 0.98. div of 2% is the sweetener.
sinograndnes in low in valuation, at PE 4.87 compare to its competitors like Wang Wang. its earning growth at 80% is too impressive to ignore. the ctr had a breakout on wed. waiting for retracement to enter.
Hi seefei,
Between the two, intuitively, I prefer Sino Grandness. I feel that it has less uncertainty.
Thanks for sharing. :)
Hi Ak71,
My entry price to this stock is 0.525. Although not as low as yours, I feel it is still inexpensive. :)
Hi INVS 2.0,
Fundamentally, it is inexpensive compared to its competitors although being a smaller company, it probably has to suffer a discount by Mr. Market. :)
Sound Global was sold down after its weak 4Q12 results, CFO departure and the ensuing management shuffle.
The stock is now trading at 9x FY13F PE or -1SD of its historical mean. It is the cheapest water stock in the region, trading at >40% discount to peers' average of 15x PE.
Our analyst has adjusted FY13/14F earnings by -5%/+12% respectively to conservatively phase out project recognition schedule.
Maintain BUY, target price: 81c.
Surging interest expense and delayed execution are key risks; Sound Global's depressed valuations could draw privatization interest, in our view.
DBSV, 21 March 2013.
I had make some $$ from China Fish previously, when I sold all my holding when it hit 2.1.
Bought it again at 8x cents and still have a paper loss. But do make some trade and earn some coffee $$.
Queued to sell some of my FREIT and got filled today.
Athough I sold some FREIT, it is still my biggest investment based on current price.
Too many failed bearish signals recently I experienced. Market maybe turning and buy calls like this sound global may not be too deep a leap of faith.
In fact strong rebound was seen on Chinese counters like Yanlord, cmz and sinograndnes. The market is trying to tell us something, I think...
Hi Poh Soon,
You made money and that is always good. :)
Hi seefei,
What do you think Mr. Market is trying to tell us?
The market correction maybe coming to an end, probably by early April. I sensed this because the bullish candle signals are more effective and accurate than the bearish one.
The bull maybe just round the corner, AK!!
Hi seefei,
Thank you for this bracing comment!
Load up on Sound Global! ;p
Hi AK,
AEM is out.. How about your view on Technics Oil & Gas?
Price has corrected from a high of $1.05 to current level of 91 cents since new shareholder Eversendai invest some S$45 million for a 20% stake. Bulk of the shares was brought at $1.05 level.
Insider has been accumulating shares too.
Technical wise, it is at strong support level.
JV has been formed with new shareholder to tap on their network and jointly bid for projects in new market.
Historial dividend has been more than 8 cents which give us a dividend yield of ~8.7% based on share price of 92 cents.
Technic Gas & Oil - Non Competition
Each of the parties shall not unless with the written approval of ET, either on its own account
or in conjunction with or on behalf of any person, firm, company or organisation, carry on or be engaged, concerned or interested directly or indirectly whether as shareholder, director,
partner, agent or otherwise in carrying on the Business carried on by ET in the following
geographical locations:-
1. India;
2. Sri Lanka;
3. Middle East;
4. Africa;
5. Europe;
6. Commonwealth Independent States (CIS) region;
7. Russia;
8. Brazil; and
9. such other geographical locations that the parties may mutually agree upon from time
to time.
* All of sudden, the market reach for Technic Oil & Gas has been expanded to cover all those market under the network of Eversendai Corporation Bhd.
I am pouring cold water over enthusiasm , I was once a shr , thanks to AK 71 for the extra pocket money, exited when he sounded alarm;) . I noted that recently one junk bond issuer, suntech has gone bust....scare leh...the cost of bonds issued by sound global is at 11.85% according to one news report in July 2012...agree tt it is a trading stk and warrants constant monitoring:)
Hi Yee,
I am not familiar with Technics Oil and Gas. A quick search revealed the following:
Cutting estimates by 10%. We are cutting our revenue forecast by 15%, given the slow pace of order wins and no order book guidance from the company for the second quarter running.
Our EPS falls by 10%, less than the revenue drop as the overall business is now higher-margin. This brings Technics to a likely SGD19.1m bottom line compared to last year’s SGD20.2m.
Downgrade to NEUTRAL, with TP of SGD0.95 based on 11x FY13F EPS. We are lowering our multiple to 11x from 12x with the poorer profit outlook, resulting in a lower TP of SGD0.95 from SGD1.15.
Our dividend forecast this year is also trimmed to 5¢ from 6¢. There are other oil & gas counters in our coverage with better growth profiles at lower multiples, with some offering equal yields, thus we recommend switching into stronger prospects.
OSK DMG, 6 Feb.
It is probably not totally comparable but if we are after exposure to O&G, Marco Polo Marine or ASL Marine have lower PE ratios and seem to have better prospects too. :)
Hi Garfield75,
I doubt Sound Global will go bust.
Despite the higher cost of debt, it is still a very profitable company.
Anyway, informed by TA, buying in at current levels could prove rewarding. Crossing fingers. ;)
Hi Yee,
I have just read up on the JV company, Eversendai Technics Pte. Ltd., which was set up by Technics Oil and Gas, Eversendai Corporation Berhad and Eversendai Construction (S) Pte. Ltd.
Technics Oil and Gas is a minority shareholder with a 30% stake and according to the management, the company will benefit from the JV. How much of a benefit was not revealed. I guess it is early days yet.
I am concerned that its EPS plunged, year on year, due to decline in earnings and an increase in the number of issued shares.
Q1 FY2012 EPS 2.04c
Q1 FY2013 EPS 0.33c
How far would the JV go to improving EPS? I am not an insider and cannot see through the fog here.
Technics Oil and Gas is a downtrend stock with no bottom forming yet. However, there are bullish divergence seen at the MACD, RSI & Stochastic.
A good entry point will be at 98 when it form a higher high and break its down trend. a higher risk entry would be at 94cts, its 20MA support.
Strong resistance is at 1.06. For such a low volume stock, i wont hold my breath waiting to see the dawn of that peak, but then, only Mr Market will know any better, as what AK always say. LOL
Hi seefei,
Are you talking about Technics from a shortist's point of view? I got curious enough to look at the chart. Haha.. ;p
We could see a higher low on the MACD on the daily chart. The weekly chart still looks pretty bad.
Drew some Fibo retracement lines. If price should decline further. There should be support at 88c and if a higher low forms on the MACD, we would have a nice positive divergence.
So, could be good for a quick trade on the long side. :)
Hi All,
Thank you for all your valuable input.
I think the decline has been pretty steep and looking at a rebound around current level... targeting a shade below $1.05 level.
The JV and the new Vietnam yard may be the wild card provide it is able to make announcement for new project...
Have a nice weekend.
Regards
Yee
AK: Damit, you got a good nose for market timing! Just checked and it's 56c... I really should read your blog more often! ;-)
In any case: If they retest the 50c support I might think about it. Not sure about the long-term prospects, but I agree it could be a nice trading buy. The fall just has been very steep...
Similar to my thinking on Wilmar..
Jay
Hi Jay,
As Prof. Minerva McGonagall would say, "It is just pure, dumb luck." ;p
I am not blogging as often as before due to other commitments. So, if you do visit more often, I hope you won't be too disappointed. ;)
Hi Everybody,
Being the noob that i am, i hope i am finally making my first positive contribution to this scene!
I just noticed that sound global hong kong shares have been falling by alot for 3 consecutive days...
just a point of note.
Hi tostubi,
Currently, it is at HK$3.55 a share in HK. That is about S$0.57 based on today's rates.
It seems that Sound Global's shares are relatively cheaper in Singapore. :)
Hi AK,
but it is a 11% drop from 3 days ago at 3.97HKD! in a 5%, 3% and 3% drop (approximately)... okay not like 17.2%. but still. haha
does that not scare you?! omg it scares me much much that i just sold half my holdings of 31 lots at 55.
i was really hoping it hit 0.71 by may so i can go on a grad trip...
btw ak, just out of curiosity if u are willing to share, for i don't see it anywhere on your blog too. just curious, but nothing impt. u can ignore me too. haha
thank you very much.
Hi tostubi,
Well, I don't know about the HKSE much but I heard from a friend that it is more volatile compared to SGX. We are more sedate. ;)
Selling at 55c and locking in gains is definitely not wrong if it gives you a peace of mind. Peace of mind is priceless. :)
As for hoping that it will hit 71c, well, there is nothing wrong with having hope as well. There must always be hope in life. ;)
As for me, I added to my long position the next day when the reversal signal at 50c was confirmed.
I am still holding on to my long position because I do not see signs of an aggressive sell off. In fact, the selling seems half-hearted. It lacks conviction.
Of course, share price could drift lower in the absence of higher volume but with the MACD having formed a positive crossover and the CMF without a lower high, any selling could be muted and could attract buyers.
Remember, TA is about probability and not certainty. So, take my reading with a pinch of salt. ;)
"btw ak, just out of curiosity if u are willing to share, for i don't see it anywhere on your blog too. just curious, but nothing impt. u can ignore me too. haha"
whoops think i was too anxious typing this till i forgot to type in the question, i wanted to ask. what do you do for a living??
If u don't mind sharing. :D
Hi tostubi,
Actually, I don't really do anything for a living these days because what I do is not to keep me alive. Haha.. Just having a bit of fun with words. ;p
If you are wondering about my day job, I am a BDM, a glorified salesman. :(
United Engineers, which increased its environmental engineering workforce by 10-fold in the past eight years, is eyeing at acquisitions to expand in industries such as water treatment to boost its business.
The unit has 50 engineers from five in 2005, and has an annual revenue of $70 million, Chief Executive Officer Jackson Yap said in an interview yesterday. He is looking to expand in Vietnam, Indonesia and Malaysia, while scouting for purchases in China and Singapore.
United Engineers’s China plants currently treat about 100,000 cubic meters of water a day. Yap said this would need to increase to 1 million cubic meters to be “a critical size” for the business.
Source: Bloomberg, 28 March 2013.
Hahaha a wholistic view of a company and it's industries surely make a good night sleep. I was worried that the breakout could be a trap. Thus, having heard your explanation I sleep better.
Hi seefei,
Sound Global is a relatively small player in its industry. I wonder if UE could be interested in acquiring it since valuation is currently inexpensive. ;p
Having done day dreaming, I think that being more conservative and adopting a trading mentality for the time being could be better.
Hi AK71,
Nam Cheong look interesting too seem like building up the base at support 0.25 - 0.255
Business has been good with new order secured this year.
Technically 8/21 EMA cross up. MACD cross up. Also big sell Order which i believe to be smoke screen...
Your thought?
Cheers
Yee
Hi Yee,
Unfortunately, I did not discover Nam Cheong soon enough. It has gone up by some 80% from its lows. It is definitely not a laggard and we won't be wrong to wonder how much upside is there left.
Fundamentally, if we think that an 8x PER is fair for companies in the industry, then, based on FY2012's EPS, fair value would be 24c a share. Of course, this is probably too conservative as we would be assuming zero earnings growth.
If we assume an earnings growth of 20%, then fair value goes to 28.5c or so. Share price is currently at 26c. Upside to fair value seems limited.
Technically, I see lower highs and a loss of momentum. Doesn't look promising but that's just me gazing into my crystal ball (which I suspect is a bowling ball). ;p
Hi AK, Dukang surge!!
Happy to c this!!
Hi yeh,
Congratulations. :)
Strong policy support from the Chinese government is likely to boost demand for the country's water and wastewater treatment industry.
The government has planned significant investments and tightened water discharge standards to address severe water shortage and water pollution.
We expect water and wastewater treatment solution providers, such as Sound Global, to benefit from:
(1) an increase in treatment capacity in both urban and rural areas;
(2) an upgrade of existing treatment facilities to meet tightened discharge standards; and
(3) the governments' and industrial corporations' outsourcing of operations and management of treatment facilities.
Reuters
Sound Global’s 1Q13 was hurt by higher interest expenses and taxes, says DBS Vickers. The company reported a net profit of RMB 61.5 million ($12.3 million). This was 20% lower y-o-y and 25% lower q-o-q. The net profit was also 10% below DBS Vicker’s forecast despite higher sales.
Excluding RMB 5.3 million forex gain, core profit would even be lower at RMB 56.2 million. The house says a key shortfall was finance costs which skyrocketed to RMB 76.8 million from RMB 30 million because the interest for the US$ senior notes surged to $41.7 million vs its forecast of $29.3 million, due to withholding tax. The tax rate was also higher at 25% vs its assumption of 15%. 1Q13 gross margins were higher at 32.9% compared to 30.4% in 1Q12 and 29.2% in 4Q12.
However, Sound Global reported that all business segments improved. Sales grew 17% y-o-y to RMB 519.3 million, about 20% above DBS Vickers’ estimates. Offshore & Marine grew the most, up 164% y-o-y to RMB 41.6 million, forming 8% of group sales from <4% previously. After deducting 1Q13’s revenue, the house estimated that Sound Global’s current EPC orderbook would be about RMB 3 billion.
Growing O&M would contribute to a good base of recurring income however, high finance costs have negated the benefits as reflected by 1Q13 results. Unless future sales can generate substantially higher returns or higher margins and O&M can offset steep borrowing costs, earnings growth would be compromised, says DBS Vickers.
“We have cut FY13F/14F to reflect higher finance cost. In view of deteriorating earnings outlook, we have also reduced valuation peg to 11xFY13 (-0.5 SD). Consequently, target price is lowered to $0.63. Downgrade to Hold given limited upside to new target price,” says DBS Vickers.
- Lee Pang Chuan
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