Midas Holdings

Kim Eng on 11 Apr 2013

Market leader in its field. Founded in 2000, Midas Holdings is today the leading manufacturer of aluminium alloy extruded products for the passenger rail transportation sector in China, with a 60-70% share of the market. It also exports aluminium alloy extruded products to Europe and other parts of Asia. The company has a strategic 32.5% equity investment in Nanjing SR Puzhen Rail Transport Co. Ltd, which is engaged in the development, manufacture and sale of metro trains, bogies and their related parts.

Beneficiary of China’s massive rail spending. Midas’s share price have slumped dramtically since high-speed train orders were practically frozen from 2011, when a fatal train collision took place. However, Beijing announced a huge investment plan this year for high-speed rail infrastructure worth RMB650b. We believe Midas would be a major beneficiary of this massive spending, given its significant share of the Chinese rail sector.

Upstream orders will flow down. Midas’s major customers CSR and CNR announced some order wins recently. As more new high-speed rail lines start operating in China, the timely supply of new trains has become even more urgent. Although there was no further clarification on the timeline of high-speed train tenders by the Ministry of Railways, the market expects they will take place in 1H13.

Could Midas be acquired? Tthe company is the only certified aluminium alloy profile supplier to the top three global train manufacturers in China, namely, Alstom, Siemens and Bombardier. Acquiring Midas would give the buyer immediate access to a market with high entry barriers. Other potential buyers are Midas’s upstream customers who want to consolidate the whole production process.

Maintain BUY with TP of SGD0.75. Midas has shown a good start by winning three contracts YTD worth around RMB379m. We remain positive on the order win outlook for 2013. Maintain our BUY rating and our target price of SGD0.75, pegged at 1.5x FY13F P/BV.