Midas Holdings

CIMB Research on 11 July 2012

MIDAS has gained 25 per cent since our update on June 28 on associate Nanjing SR Puzhen Rail Transport's (NPRT) contract win announcement. Returning investor confidence reaffirms our expectations of a re-rating when high- speed railway contract awards resume. Target price is unchanged at 11.7 times CY2013 EPS, or $0.41.

Midas has recently secured two contracts worth 139.3 million yuan ($27.8 million) in total. The first is a 74.6 million yuan contract from its associate NPRT which involves the supply of aluminium extrusion profiles for 46 train sets for the Nanjing Metro Line 3 Project.

Delivery will take place from 2012 to 2014. Midas also secured new orders for three Siemens projects in Russia and Belgium worth 64.7 million yuan. Midas will supply aluminium profiles and fabricated parts for the Desiro Mainline Bruxelles project in Belgium, as well as the Desiro RUS Sochi and Velaro RUS2 projects in Russia. Delivery will take place from 2012 to 2013.

While the contract sizes are not especially large, we think their awards indicate Midas's ability to weather the high-speed railway contract drought with metro and international contracts. After this win, we estimate current order book to be 600 million yuan with two years' earnings visibility. Management is confident of securing at least 400 million-500 million yuan worth of metro and international contract orders. Year to date, Midas has secured 201 million yuan of such contracts.

With NPRT's latest 860 million yuan win, we think that Midas should be able to secure another 100 million yuan worth of orders from its associate in the coming quarter. We think that management's internal expectations are achievable.

We think that Midas's share price performance following our June 28 note signals rising investor confidence. This cements our investment thesis of a valuation re-rating when high-speed railway contract flows return. Midas is currently trading at 9.8 times CY2013 EPS, below its historical average of 17.2 times. Maintain "outperform".

OUTPERFORM