Midas Holdings’ 1Q13 net loss attributable to shareholders of CNY4.9m (1Q12: PATMI of CNY15.3m) was larger than our forecast for a net loss of CNY3.2m. This was attributed largely to a wider-than-estimated share of loss of CNY4.0m from its associated company, NPRT. Looking ahead, we believe that strength of Midas’ recovery will depend heavily on the resumption of new high-speed railway (HSR) tenders. As the timeline of this is still uncertain, we believe that a more significant recovery in Midas’ financial performance would likely come in FY14, versus our previous FY13 expectations. Paring our FY13 revenue and PATMI estimates by 9.7% and 59.1%, respectively, and lowering our valuation peg from 1.2x to 1.1x FY13F P/B, we derive a fair value estimate of S$0.54 (previously S$0.595). But we maintain our BUY rating as we expect the eventual HSR tenders resumption and subsequent contract wins by Midas to provide a re-rating catalyst for the stock.
1Q13 net loss wider than expected
In line with its profit guidance issued on 10 May, Midas Holdings reported a net loss attributable to shareholders of CNY4.9m in 1Q13, versus PATMI of CNY15.3m in 1Q12. Revenue fell 12.1% YoY to CNY202.4m. While we had expected Midas to report a loss-making quarter, the magnitude was larger than our forecast for a net loss of CNY3.2m. However, revenue was within our CNY199.8m estimate. The below-expectations bottomline performance was due partially to weaker-than-estimated gross margin and largely attributed to a share of loss of CNY4.0m from its associated company, Nanjing SR Puzhen Rail Transport (NPRT), versus our projection for a share of loss of CNY0.8m. On an operational basis, Midas was actually profitable, although profit from operations dipped 50.4% YoY to CNY18.9m.
Targeting new order wins; close watch on HSR development
The order book for Midas and NPRT stood at CNY650m and CNY7.2b, respectively, as at 31 Mar 2013. Looking ahead, Midas’ management is seeking potential new order wins totalling ~CNY400-600m within the metro and international rail transport space in the near future. However, the strength of its recovery will depend heavily on the resumption of new high-speed railway (HSR) tenders by the China Railway Corporation, in our view.
Re-rating potential still exists despite weak near-term financials
As the timeline of this is still uncertain (partly due to ongoing railway reform), we believe that a more significant recovery in Midas’ financial performance would likely come in FY14, versus our previous FY13 expectations. Hence we see the need to slash our FY13 revenue and PATMI estimates by 9.7% and 59.1%, respectively. Our FY14 projections are unchanged. We also lower our valuation peg on Midas from 1.2x to 1.1x FY13F P/B. Consequently, our fair value estimate declines from S$0.595 to S$0.54. Notwithstanding this, we maintain our BUY rating as we still hold a firm belief that Midas’ share price would be due for a re-rating once new HSR contract tenders materialise eventually, coupled with subsequent contract wins by Midas. The long-term outlook for Midas also remains positive, in our opinion.
In line with its profit guidance issued on 10 May, Midas Holdings reported a net loss attributable to shareholders of CNY4.9m in 1Q13, versus PATMI of CNY15.3m in 1Q12. Revenue fell 12.1% YoY to CNY202.4m. While we had expected Midas to report a loss-making quarter, the magnitude was larger than our forecast for a net loss of CNY3.2m. However, revenue was within our CNY199.8m estimate. The below-expectations bottomline performance was due partially to weaker-than-estimated gross margin and largely attributed to a share of loss of CNY4.0m from its associated company, Nanjing SR Puzhen Rail Transport (NPRT), versus our projection for a share of loss of CNY0.8m. On an operational basis, Midas was actually profitable, although profit from operations dipped 50.4% YoY to CNY18.9m.
Targeting new order wins; close watch on HSR development
The order book for Midas and NPRT stood at CNY650m and CNY7.2b, respectively, as at 31 Mar 2013. Looking ahead, Midas’ management is seeking potential new order wins totalling ~CNY400-600m within the metro and international rail transport space in the near future. However, the strength of its recovery will depend heavily on the resumption of new high-speed railway (HSR) tenders by the China Railway Corporation, in our view.
Re-rating potential still exists despite weak near-term financials
As the timeline of this is still uncertain (partly due to ongoing railway reform), we believe that a more significant recovery in Midas’ financial performance would likely come in FY14, versus our previous FY13 expectations. Hence we see the need to slash our FY13 revenue and PATMI estimates by 9.7% and 59.1%, respectively. Our FY14 projections are unchanged. We also lower our valuation peg on Midas from 1.2x to 1.1x FY13F P/B. Consequently, our fair value estimate declines from S$0.595 to S$0.54. Notwithstanding this, we maintain our BUY rating as we still hold a firm belief that Midas’ share price would be due for a re-rating once new HSR contract tenders materialise eventually, coupled with subsequent contract wins by Midas. The long-term outlook for Midas also remains positive, in our opinion.
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