Midas Holdings (Midas) reported 3Q12 net loss of CNY6.1m (3Q11: CNY27.4m PATMI), which was worse than our CNY1.3m forecast although loss before tax of CNY1.6m matched our estimate. Its poor financial performance was attributed to higher operating expenses, finance costs and a share of loss of CNY7.0m from its associated company NPRT. We lower our FY12 PATMI forecast from CNY19.0m to CNY6.8m and also trim our FY13 estimate by 8.1%. But on a broader scheme of things, we see positives from the Chinese government’s re-emphasis on its commitment to develop its rail transport industry, which should aid Midas’ recovery in FY13. Near-term catalysts for Midas’ share price could come from contract order wins and the resumption of new high-speed train car orders by China’s Ministry of Railway. Maintain BUY, with a revised fair value estimate of S$0.50 (previously S$0.505), still pegged to1x FY13F P/B, as we trim our FY13 PATMI estimate by 8.1%.
Reports first ever loss since IPO
Midas Holdings (Midas) reported a 21.8% YoY dip in its 3Q12 revenue to CNY202.7m, which was 6.0% below our projection. As a result of higher operating expenses, finance costs and a share of loss of CNY7.0m from its associated company, Nanjing SR Puzhen Rail Transport (NPRT), Midas registered a loss before tax of CNY1.6m, which matched our estimate. However, net loss of CNY6.1m (3Q11: CNY27.4m PATMI) came in worse than our CNY1.3m forecast due to higher-than-expected income tax expenses. For 9M12, PATMI slumped 92.9% to CNY10.7m on the back of a 24.9% drop in revenue to CNY653.0m. Current order book for Midas stands at CNY500m (59% of our FY12F revenue estimate), while that of NPRT is CNY9b.
Near-term financial weakness to persist
Midas’ net gearing ratio increased from 2.2% in 3Q11 to 23.7% in 3Q12 as it increased its borrowings to finance its working capital requirements and capacity expansion plans. We expect this to translate into higher finance costs for Midas. Our FY12 PATMI forecast is lowered from CNY19.0m to CNY6.8m. We also trim our FY13 PATMI estimate by 8.1%.
Reiterate BUY
However, we see positives from the Chinese government’s re-emphasis on its commitment to develop its rail transport industry, which should aid Midas’ recovery in FY13. Midas’ management is currently exploring potential new contract orders amounting to CNY500-550m in the metro and international rail transport space. Key catalysts in the near-term for Midas could come in the form of i) successful contract wins which would boost its depleting order book and ii) resumption of new high-speed train car orders by China’s Ministry of Railways. Although the latter would not translate into immediate contract wins for Midas as it takes time for orders to filter down from its customers, we believe a sector re-rating, when the standstill ends, is highly likely which would benefit Midas’ share price. Maintain BUY, with a revised fair value estimate of S$0.50 (previously S$0.505), still based on 1x FY13F P/B ratio.
Midas Holdings (Midas) reported a 21.8% YoY dip in its 3Q12 revenue to CNY202.7m, which was 6.0% below our projection. As a result of higher operating expenses, finance costs and a share of loss of CNY7.0m from its associated company, Nanjing SR Puzhen Rail Transport (NPRT), Midas registered a loss before tax of CNY1.6m, which matched our estimate. However, net loss of CNY6.1m (3Q11: CNY27.4m PATMI) came in worse than our CNY1.3m forecast due to higher-than-expected income tax expenses. For 9M12, PATMI slumped 92.9% to CNY10.7m on the back of a 24.9% drop in revenue to CNY653.0m. Current order book for Midas stands at CNY500m (59% of our FY12F revenue estimate), while that of NPRT is CNY9b.
Near-term financial weakness to persist
Midas’ net gearing ratio increased from 2.2% in 3Q11 to 23.7% in 3Q12 as it increased its borrowings to finance its working capital requirements and capacity expansion plans. We expect this to translate into higher finance costs for Midas. Our FY12 PATMI forecast is lowered from CNY19.0m to CNY6.8m. We also trim our FY13 PATMI estimate by 8.1%.
Reiterate BUY
However, we see positives from the Chinese government’s re-emphasis on its commitment to develop its rail transport industry, which should aid Midas’ recovery in FY13. Midas’ management is currently exploring potential new contract orders amounting to CNY500-550m in the metro and international rail transport space. Key catalysts in the near-term for Midas could come in the form of i) successful contract wins which would boost its depleting order book and ii) resumption of new high-speed train car orders by China’s Ministry of Railways. Although the latter would not translate into immediate contract wins for Midas as it takes time for orders to filter down from its customers, we believe a sector re-rating, when the standstill ends, is highly likely which would benefit Midas’ share price. Maintain BUY, with a revised fair value estimate of S$0.50 (previously S$0.505), still based on 1x FY13F P/B ratio.
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