Midas Holdings: Higher Utilisation Boosts Revenue
(BUY, SGD0.52, SGD0.75)
Midas recorded a surge in 2Q13 PATMI to CNY14.9m as orders started picking up. With the Chinese Government reaffirming its investment in railway infrastructure, there is a good chance of more order flows for Midas over the next few quarters. We also expect positive contribution from its associate NPRT to boost its FY13 earnings.
Maintain BUY, with TP of SGD0.75, based on 1.5x FY13F P/BV. 2Q13 revenue grew 29.2% y-o-y to CNY284.0m on the back of improving utilisation of its production lines. Despite the revenue growth, 2Q13 gross profit margin fell to 22.4%, from 31.5% in 2Q12, due to a change in product mix – it also supplied freight wagons, which are generally of lower margins. The CNY3.1m profit from its associate Nanjing SR Puzhen Rail Transport (NPRT) – compared with a CNY14.1m loss a year ago – pushed up its 2Q13 PATMI by eight-fold.
Orders picking up. Midas’ orderbook is now at CNY700m, while NPRT’s orderbook is at CNY9bn, with the bulk of deliveries scheduled for 2014 and 2015. Order flows are expected to increase going forward as China Railway Corp (CRC) has committed to speeding up rail investment. Of its planned CNY530bn investment for railway development in 2013, only a third had been completed so far, indicating the potential for more orders in 2H13.
CRC intends to buy locomotives, bullet trains and rolling stock. This would benefit China’s largest train makers CSR Corp and China CNR Corp. As the two are major customers of Midas, the company is likely to benefit from the spillover.
Higher revenue assumptions, maintains TP. With order flows starting to pick up, we reckon Midas should be able to record better capacity utilisation in FY13 than previously expected. Hence, we raise our revenue estimates to CNY912.0m. We are keeping our earnings estimates unchanged as we factor in higher operating expenses. Maintain BUY.
Publish date: 19/08/13