Midas Holdings

OCBC Investment Research, June 13

MIDAS Holdings' joint-venture company, Nanjing SR Puzhen Rail Transport (NPRT), is on a roll. NPRT, 32.5 per cent-owned by Midas, which manufactures metro trains in China, recently secured three contracts amounting to about 2.45 billion yuan or $500 million (assuming a 70 per cent stake for one of the contracts won together with its consortium partners) within a span of two weeks (May 29 to June 11).

This entails the supply of a total of 428 train cars, with delivery spread over 2013 to 2016.

We believe this highlights the fast-growing momentum of China's metro industry, which is targeted at easing China's traffic congestion and environmental pollution issues.

As Midas is also a key supplier of aluminium alloy extrusion profiles to NPRT, we expect it to strive to win new orders from NPRT.

Year-to-date, Midas has already clinched 99 million yuan worth of contracts from NPRT (for projects which NPRT won during last July-September period).

Contribution to Midas is likely to improve in H2 2013. Hence, although NPRT has been a drag on Midas' financials, with a reported share of loss of associates of 5.7 million yuan and 4.0 million yuan for FY2012 and Q1 2013, respectively, we believe that the situation would improve from H2 2013, based on NPRT's delivery schedule.

We forecast Midas to record a share of profits of associates of 11.9 million yuan for FY2013 and 24.8 million yuan for FY2014.

Midas' management has also set its sights on growing its exports business. For example, Russia is seeking to develop its high-speed rail network, with global train manufacturers Siemens AG and Alstom reportedly keen on expanding their presence there.

Midas would be a key beneficiary of this, given that it is a supplier of both companies. It recently won a 22.7 million-euro ($37.8 million) Russian electric train contract in March this year.

In light of the aforementioned factors, we remain positive on Midas' long-term outlook, but believe that the major re-rating catalyst would have to come from the resumption of new high-speed train car tenders from China.

Maintain "buy" and $0.54 fair- value estimate on Midas.

BUY