We view Midas Holdings (Midas) as a proxy play to the economic recovery story of China in 2013, which would be driven in part by rising urbanisation and railway investments. The latter could amount to CNY600-650b, according to media reports. We believe that China’s Ministry of Railways could resume high-speed passenger train car contract tenders in 1Q13. We expect this to translate into order wins for Midas from its customers in 1H13, with deliveries possibly happening from 2H13. Despite Midas’ recent share price surge, we believe that more upside potential exists. This is premised on the improved optimism of the industry recovery prospects, which has led to a sector re-rating. Coupled with a more “risk-on” approach adopted by the market, we raise our fair value estimate on Midas from S$0.50 to S$0.60 as we ascribe a higher FY13F P/B peg of 1.2x (previously 1x). Maintain BUY.
China’s railway investments could hit CNY600-650b in 2013
We view Midas Holdings (Midas) as a proxy play to the economic recovery story of China in 2013, which would be driven largely by infrastructure investments and domestic consumption. In particular, we expect railway capex to form an integral part of these investments. According to media reports, approximately CNY600-650b of railway investments will be made in China this year. We believe that China’s Ministry of Railways could resume high-speed passenger train car contract tenders in 1Q13. We expect this to translate into order wins for Midas from its customers in 1H13, with deliveries possibly happening from 2H13.
Urbanisation to drive sector development
China’s expected increase in railway spending is fuelled in part by rising urbanisation. Vice Premier Li Keqiang is a strong advocate of urbanisation as a means of boosting China’s economic growth. According to the National Academy of Economic Strategy (under the Chinese Academy of Social Sciences), China’s urbanisation rate would grow by 0.8 to 1 ppt per annum in the coming years from 2013. Hence we believe that it makes economic and social sense for the government to develop its railway transportation network.
Further re-rating still on the cards
Midas’ share price has performed well since we upgraded it to a ‘Buy’ on 16 Aug 2012, surging 38.2% and exceeding the STI’s 4.7% gain. Nevertheless, valuations remain undemanding, in our view, with the stock trading at 0.9x FY13F P/B. The railway sector has also re-rated recently on optimism of the recovery prospects in the industry. Coupled with a more “risk-on” approach adopted by the market, we ascribe a higher valuation peg of 1.2x (previously 1x) to Midas’ FY13F book value per share. This is ~0.75 standard deviation below its historical mean forward P/B ratio, which we believe allows us to take into account some of the uncertainty over the strength of its recovery. Our fair value estimate is correspondingly raised from S$0.50 to S$0.60. Maintain BUY.
We view Midas Holdings (Midas) as a proxy play to the economic recovery story of China in 2013, which would be driven largely by infrastructure investments and domestic consumption. In particular, we expect railway capex to form an integral part of these investments. According to media reports, approximately CNY600-650b of railway investments will be made in China this year. We believe that China’s Ministry of Railways could resume high-speed passenger train car contract tenders in 1Q13. We expect this to translate into order wins for Midas from its customers in 1H13, with deliveries possibly happening from 2H13.
Urbanisation to drive sector development
China’s expected increase in railway spending is fuelled in part by rising urbanisation. Vice Premier Li Keqiang is a strong advocate of urbanisation as a means of boosting China’s economic growth. According to the National Academy of Economic Strategy (under the Chinese Academy of Social Sciences), China’s urbanisation rate would grow by 0.8 to 1 ppt per annum in the coming years from 2013. Hence we believe that it makes economic and social sense for the government to develop its railway transportation network.
Further re-rating still on the cards
Midas’ share price has performed well since we upgraded it to a ‘Buy’ on 16 Aug 2012, surging 38.2% and exceeding the STI’s 4.7% gain. Nevertheless, valuations remain undemanding, in our view, with the stock trading at 0.9x FY13F P/B. The railway sector has also re-rated recently on optimism of the recovery prospects in the industry. Coupled with a more “risk-on” approach adopted by the market, we ascribe a higher valuation peg of 1.2x (previously 1x) to Midas’ FY13F book value per share. This is ~0.75 standard deviation below its historical mean forward P/B ratio, which we believe allows us to take into account some of the uncertainty over the strength of its recovery. Our fair value estimate is correspondingly raised from S$0.50 to S$0.60. Maintain BUY.
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