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Sound Global's 9M12 earnings up 8% to CNY341m

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.

Key numbers
 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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