• Stock has fallen 20% m-o-m, oversold at –1SD of 10.2x FY11 PE, 26%
  discount to peers
• Fundamentals remain intact: 20-30% growth backed by RMB2.3b orderbook; strong contract flows driven by positive industry dynamics
• Reiterate Buy, 45% upside to unchanged TP of S$0.84

Improved risk/reward profile for Sound Global (SGL) as recent market correction and aversion to Chinese companies have brought share price down by 20% m-o-m and 31% YTD. Share price has retraced back to 2006 levels
although the current scale of business and industry outlook are firmer than before. We believe SGL is oversold @ -1SD; it is also among the cheapest water stock in the region at 10.2x FY11 and 9.3x FY12, about 26% discount to average PE of regional water peers.

Growth remains supported by strong orderbook and more contract flows.
Considering long-term industry dynamics and SGL’s improvement in corporate
access, we believe the sell-off in SGL is overdone.
We see near term positives being
1) visible growth outlook backed by RMB2.3b order backlog, of which 60% would be completed in FY11;
2) likelihood of more PRC contracts and a couple of overseas wins based on current bidding pipeline. YTD, SGL has met 64% of our new win assumption of RMB1.5b for FY11; and
3) expectations of sequential improvement in quarterly results for the rest of
this year. Chairman Wen’s YTD open market share purchase – a total of 2m shares – is a vote of management’s confidence in current business performance and future outlook.

Reiterate Buy, 45% upside to unchanged TP of S$0.84.
In our view, current market weakness offers a good entry point into SGL, which we believe would be re-rated over time for its proven track record, strong balance sheet and high growth visibility. Our TP of S$0.84, based on peers’ average of 14x
blended FY11/12 PE, offers close to 45% potential returns to shareholder.
Reiterate Buy..