Midas Holdings

UOBKayhian on 6 Mar 2013

Valuation

·      Midas is trading at 15.9x 2014F PE based on Bloomberg consensus estimates of 42.7% earnings growth.

Investment highlights

·      Midas is a dominant aluminium alloy products manufacturer for the passenger rail transport industry in China. It currently has more than a 65% market share of China’s passenger rail sector, and is capable of producing 50,000 tonnes of extrusion products for train cars and fabricating 1,000 train cars annually.   

·      Midas also holds a 32.5% strategic stake in Nanjing SR Puzhen Rail Transport (NPRT), a JV with CSR Group to develop, manufacture and sell metro trains, bogies and their related parts. It is one of only four metro manufacturers to tender for metro train projects in China on a nationwide basis. To leverage on increasing demand, Midas has established a new plant in Luoyang to supply 100% of Luoyang’s CSR’s requirements. 

·      The group has also been actively securing projects outside China with contracts in Asia, Europe and the Middle East. Global clients include Siemens, Bombardier and Alstom etc.

Company outlook

·      Outlook for China’s railway infrastructure has become positive, with the Ministry of Railways (MOR) announcing RMB650b of investment into the sector for 2013. This is a turnaround from 2011 after the investigation of the former China Railway minister for corruption, and the MOR’s ballooning debt to finance its rapid expansion.   

·      The company’s associate NPRT has also been awarded with the several contract wins in 2013 such as Ningtian Intercity Line Phase 1 Project and Suzhou National New & Hi-tech Industrial Development Zone Tramline 1 Project worth over Rmb700m and Rmb300m respectively. As of 31 Dec 12, Midas had an orderbook of Rmb400m to be completed in 18-24mths and NPRT had an orderbook of Rmb7.5b to be completed by 2016.

Financials

·      Net profit for 2012 declined 86.3% yoy to Rmb25.6m on lower revenue Rmb869.5m and a loss from the associated company NPRT. Gross profit fell to Rmb251.3m with gross profit margins narrowing to 28.9% (2011: 33.5%) as the group had to account for higher per unit production cost amidst slowing orders and lower utilisation rates. Associated company NPRT also booked in a loss of RMB5.7m as a result of fewer train car deliveries during the year. As at 31m Dec 12, its net gearing stands at 0.28x.