Midas Holdings reported a 46.7% YoY jump in its 1Q14 revenue to CNY296.9m, while the bottomline reversed from a net loss of CNY4.9m in 1Q13 to a PATMI of CNY11.5m in 1Q14. However, the latter still fell short of our below-consensus projection by 24.0%. Notwithstanding this earnings miss, we note that there are more positive developments emanating from China’s railway sector, the most notable being China Railway Corporation’s decision to increase its railway fixed asset investments target from CNY630b to CNY800b for 2014. Taking into account this latest set of results, we cut our FY14 and FY15 PATMI forecasts by 28.3% and 12.5%, respectively, and also assign a slightly lower target P/B peg of 1.2x (previously 1.3x) to our revised FY14 projection. Maintain BUY on Midas, but our fair value estimate is reduced from S$0.66 to S$0.61.
1Q14 PATMI below our expectations
Midas Holdings reported a 46.7% YoY jump in its 1Q14 revenue to CNY296.9m (0.3% below our forecast), while the bottomline reversed from a net loss of CNY4.9m in 1Q13 to a PATMI of CNY11.5m in 1Q14. However, this still fell short of our below-consensus projection by 24.0%, due to higher-than-expected operating costs and income tax expense, but partially offset by a strong share of profits contribution of CNY13.1m (1Q13: share of loss of CNY4.9m) from its associate Nanjing SR Puzhen Rail Transport (NPRT). Management is in the process of applying for a renewal of its concessionary tax status and would be able to obtain a tax refund if approval is granted. As at 31 Mar 2014, Midas and NPRT’s order books stood at CNY800m (excludes CNY464m of contracts secured in Apr this year) and CNY8b, respectively.
Brighter prospects for China’s railway sector
Notwithstanding this earnings miss, we note that China Railway Corporation (CRC) recently increased its railway fixed asset investments target from CNY630b to CNY800b for 2014, which should imply more high-speed train car tenders in the months ahead. Although the timeline of this is unclear, we believe the next round of tender may happen in 3Q14. CRC also announced a few other key measures recently: i) increase in commencement of new projects from 48 to 64; ii) commitment to hit its initial target of at least 7,000 km of additional operational railway lines in 2014; and iii) increase in railway equipment investments from CNY120b to CNY143b for this year.
Maintain BUY
Given the larger-than-expected cost pressures which Midas is facing (albeit partly due to higher start-up expenses in preparation for a new upcoming line and plant), we cut our FY14 and FY15 PATMI forecasts by 28.3% and 12.5%, respectively. We also assign a slightly lower target P/B peg of 1.2x (previously 1.3x) to our revised FY14 projection. Maintain BUY on Midas, but our fair value estimate is reduced from S$0.66 to S$0.61.
Midas Holdings reported a 46.7% YoY jump in its 1Q14 revenue to CNY296.9m (0.3% below our forecast), while the bottomline reversed from a net loss of CNY4.9m in 1Q13 to a PATMI of CNY11.5m in 1Q14. However, this still fell short of our below-consensus projection by 24.0%, due to higher-than-expected operating costs and income tax expense, but partially offset by a strong share of profits contribution of CNY13.1m (1Q13: share of loss of CNY4.9m) from its associate Nanjing SR Puzhen Rail Transport (NPRT). Management is in the process of applying for a renewal of its concessionary tax status and would be able to obtain a tax refund if approval is granted. As at 31 Mar 2014, Midas and NPRT’s order books stood at CNY800m (excludes CNY464m of contracts secured in Apr this year) and CNY8b, respectively.
Brighter prospects for China’s railway sector
Notwithstanding this earnings miss, we note that China Railway Corporation (CRC) recently increased its railway fixed asset investments target from CNY630b to CNY800b for 2014, which should imply more high-speed train car tenders in the months ahead. Although the timeline of this is unclear, we believe the next round of tender may happen in 3Q14. CRC also announced a few other key measures recently: i) increase in commencement of new projects from 48 to 64; ii) commitment to hit its initial target of at least 7,000 km of additional operational railway lines in 2014; and iii) increase in railway equipment investments from CNY120b to CNY143b for this year.
Maintain BUY
Given the larger-than-expected cost pressures which Midas is facing (albeit partly due to higher start-up expenses in preparation for a new upcoming line and plant), we cut our FY14 and FY15 PATMI forecasts by 28.3% and 12.5%, respectively. We also assign a slightly lower target P/B peg of 1.2x (previously 1.3x) to our revised FY14 projection. Maintain BUY on Midas, but our fair value estimate is reduced from S$0.66 to S$0.61.
No comments:
Post a Comment