Sound Global has won a RMB480m contract to build wastewater treatment plants with total daily treatment capacity of 13,000 tons in five rural towns in Jiangyan City, Jiangsu Province, including ancillary facilities for wastewater pipe networks, and the BT of the water supply pipe networks. The concession period of this project is 25 years. Construction will take 14 months and the project is expected to commence operation by late Dec 2012.

This contract, with EPC value of approximately RMB385-408m based on 80-85% of investment value, would lift YTD EPC new orders to about RMB1367-1390m. This is roughly 80% of our FY11 new win forecast of RMB1700m.

We are optimistic that SGL is on track to meet our expectation based on a robust enquiry pipeline and contracts under negotiations. SGL's last reported orderbook was RMB2.3b at end of 2Q11 and this contract will help maintain orderbook at the record level even if we exclude 3Q11 order elivery.

This is SGL's 3rd rural project in China and the largest in terms of contract value, marking the firm's competence and successful entry into this new and niche market. Rural projects bode well for private operators because 1) EPC contract value is sizeable and 2) as much as 80-90% of project investment is borned by the government, thus making it less capital intensive for private operators. SGL is the first and only listed Chinese company that has made headway into rural development. We believe it is well-placed for more growth in this under-served market.

SGL currently trades at 8x FY12 PE. We believe our 12% EPS growth for FY12 is conservative and see room for earnings upside if the company execute its expanding orderbook faster than expected. Maintain Buy with unchanged TP of S$0.81 based on historical average of 14.5x PE on FY11/12 blended earnings.