Sound Global: Citi Upgrades Co. to Buy from Sell, with $0.78 TP. Note that 2010 results slightly above forecasts. Upgrade Sound Global to Buy from Sell after the stock has fallen 28% ytd. Raise earnings by 1-3% in 2011-12 and also introduce 2013 estimates….
Note that grp looks one of the cheapest water stocks, while current valuation of 10x FY11 P/E makes it look one of the cheapest stocks among wastewater treatment Chinese
peers vs average 19x P/E of the peer range…..
Add that BOT should be the key driver, in view of China credit tightening, more local govets will likely offer more BOT (Build-Operate-Transfer) projects instead of cash projects, which carry higher margins on bearing more interest expense. Believe BOT will account for 30% of total turnover in the coming five years, from 6-8% in 2011….
Also strong balance sheet underpins BOT capex, with Co. holding net cash of Rmb1.1b or a cash balance of Rmb2.3b, which should underpin its BOT capex needs over the coming three yrs. Mgt has no equity financing plan, given the current low valuation.
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