Sound Global

Sound Global: DBSV maintains Buy with $0.81 TP. Note that Sound Global is the Cheapest water stock and stock 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. Is something amiss? Earnings-wise, 4Q12 was indeed disappointing due to higher borrowing costs. But, with a record Rmb3-4bn order backlog and an expanding BOT portfolio to generate higher recurring Operation & Maintenance (O&M) income, the company’s earnings should continue to grow, albeit at 10% and not 20-30% as in the past given today’s much bigger base. More importantly, the industry’s outlook remains positive with more contract wins expected. As for management changes, house neutral as long as Chairman Wen, who also owns 50% of the company, maintains his position and shareholding. Apart from consistent earnings delivery from execution ofits orderbook and BOT portfolio, SGL’s depressed valuations could draw privatization interest. The stock still offers 62% upside even as house lower TP to S$0.81, pegged to historical mean of 13.5x FY13 PE.