We maintain our BUY rating on Midas Holdings (Midas) and raise our fair value estimate from S$0.435 to S$0.51 in light of the brighter prospects in China’s railway sector. The latest data on total railway fixed asset investments (FAI) in China exhibited an encouraging 92.7% YoY surge to CNY72.7b for the month of Sep, which we believe highlights the progressive recovery in the sector. Another positive development came from the China Ministry of Railways’ (MOR) decision to raise its 2012 railway FAI target from CNY610b to CNY630b, having only previously done so in Sep. Moving forward, we see further re-rating catalysts for Midas when China’s MOR resumes the re-tendering of new HSR passenger train car contracts in the near future and continued traction gains in Midas’ orders win momentum from the urban rail and power industries.
Surge in China’s railway fixed asset investments in Sep
China’s total railway fixed asset investments (FAI) for Sep showed an encouraging 92.7% YoY surge to CNY72.7b, according to statistics released by China’s Ministry of Railways (MOR). On a cumulative basis, while total railway FAI from Jan-Sep 2012 still slid 13.0% to CNY344.2b, this was a vast improvement from the 24.1% dip suffered from Jan-Aug 2012. We believe that this latest data highlights the progressive recovery in China’s railway sector, and we expect Midas Holdings (Midas) to be a key beneficiary of this improved sector outlook.
Yet another upgrade in MOR’s spending target
Another positive development came from MOR’s decision to raise its 2012 railway FAI target from CNY610b to CNY630b, having only previously done so in Sep. The entire targeted increase would come from infrastructure spending. Although the equipment investment target remained unchanged at CNY114b from the previous update, we believe that there is a strong possibility for growth in 2013. This is premised on the fact that the newly constructed high-speed railway (HSR) tracks would require new rolling stock to operate on. We believe that China’s easing economic growth has provided strong impetus for the Chinese government to speed up its stimulus programmes on infrastructure spending, thus enhancing the outlook and prospects of the railway sector.
Reiterate our BUY rating
We see further re-rating catalysts ahead for Midas when China’s MOR resumes the re-tendering of new HSR passenger train car contracts in the near future and continued traction gains in Midas’ orders win momentum from the urban rail and power industries. Hence we ascribe a higher valuation peg of 1x FY13F P/B (previously 0.85x) to Midas in light of the brighter prospects in China’s railway sector. This still represents a significant 61.1% discount to its average forward P/B since its IPO and is also a 29.2% discount to its 3-year average forward P/B. Our fair value estimate on Midas is correspondingly increased from S$0.435 to S$0.51. Maintain BUY.
China’s total railway fixed asset investments (FAI) for Sep showed an encouraging 92.7% YoY surge to CNY72.7b, according to statistics released by China’s Ministry of Railways (MOR). On a cumulative basis, while total railway FAI from Jan-Sep 2012 still slid 13.0% to CNY344.2b, this was a vast improvement from the 24.1% dip suffered from Jan-Aug 2012. We believe that this latest data highlights the progressive recovery in China’s railway sector, and we expect Midas Holdings (Midas) to be a key beneficiary of this improved sector outlook.
Yet another upgrade in MOR’s spending target
Another positive development came from MOR’s decision to raise its 2012 railway FAI target from CNY610b to CNY630b, having only previously done so in Sep. The entire targeted increase would come from infrastructure spending. Although the equipment investment target remained unchanged at CNY114b from the previous update, we believe that there is a strong possibility for growth in 2013. This is premised on the fact that the newly constructed high-speed railway (HSR) tracks would require new rolling stock to operate on. We believe that China’s easing economic growth has provided strong impetus for the Chinese government to speed up its stimulus programmes on infrastructure spending, thus enhancing the outlook and prospects of the railway sector.
Reiterate our BUY rating
We see further re-rating catalysts ahead for Midas when China’s MOR resumes the re-tendering of new HSR passenger train car contracts in the near future and continued traction gains in Midas’ orders win momentum from the urban rail and power industries. Hence we ascribe a higher valuation peg of 1x FY13F P/B (previously 0.85x) to Midas in light of the brighter prospects in China’s railway sector. This still represents a significant 61.1% discount to its average forward P/B since its IPO and is also a 29.2% discount to its 3-year average forward P/B. Our fair value estimate on Midas is correspondingly increased from S$0.435 to S$0.51. Maintain BUY.
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