Here are 3 reasons for the increase.
According to Nomura, Sound Global (SGL)’s 9M12 recurring earnings came in at CNY341mn, up 8% YoY, largely in-line (4.0%/9.4% below consensus/our earnings est., respectively, applying a 9M historical run-rate of 76% to FY est.).
Here's more from Nomura:
The 8% YoY earnings growth was attributed by 1) a 16% increase in revenue to CNY1,963mn, offset by 2) a 1.9pp YoY decrease in gross margin to 30.5%; and 3) a 39% YoY rise in finance costs to CNY110mn.
Revenue was up 16% YoY, largely driven by a 12% YoY increase in EPC revenue to CNY1,798mn and a 162% YoY increase in equipment fabrication segment revenue to CNY98.7mn.
Finance costs were up 39% YoY to CNY110mn due to newly issued USD senior notes in 3Q12. As at 9M12, SGL has an effective interest rate of c.7%, per our est.
R&D expense was up 158% YoY to 19.2mn in 9M12. This was largely due to high R&D expense during 1H12. In 3Q12 alone, R&D expense fell 64.5% QoQ to CNY3.6mn, c.0.5% of 3Q12’s revenue (vs. a ratio of 0.4% observed in 3Q11 and 1.4/1.3% seen in 2Q12/1Q12).
Net gearing came in at 2.4% at 9M12 (vs. FY11’s net cash).
Distributing and selling expenses were up 115% to CNY26.6mn, due to an increase in tender fees paid to agents. The YoY increasing trend in distribution expenses is consistent with 1Q12 and 2Q12.
Per management, backlog as at 9M12 was maintained at c. CNY2.7bn.
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