Monday, August 19, 2013

Midas Holdings : Weak earnings but focus is on timing of HSR contracts (DBSV)

Midas Holdings,
Buy S$0.515,
Weak earnings but focus is on timing of HSR contracts
Price Target : 12-Month S$ 0.60

•2Q earnings of Rmb14.9m largely in line; 1H13 earnings  declined 41% to Rmb10m; 0.25Scts DPS declared
•Core earnings remain weak as utilisation rate is still less than 50% but associate NPRT has turned around
•Midas to remain profitable but the strength of its recovery will depend on how soon China’s high speed railway program restarts

•Maintain BUY and S$0.60 TP (1.2x P/BV)

Highlights
Revenue climbed above Rmb280m (+29% y-o-y to RMB284m) for the first time since 2Q11, boosted by higher deliveries to the transport segment.  However, gross profit fell 8% y-o-y to Rmb63.8m due to lower utilisation (on expanded capacity) and a change in product mix. Associate Nanjing Puzhen (NPRT) turned in a positive contribution of Rmb3.1m compared to a Rmb14.1m loss in 2Q12.
1H13 earnings stand at Rmb10m (-41% y-o-y) on 8% higher revenue to Rmb486m. Gross profit for 1H13 fell 16% to Rmb115m as gross margins fell 6.9ppts to 23.6% due to lower utilisation.

Our View
Speed and extent of core earnings recovery will depend on award of HSR contracts. With a slightly improved order book due to contract wins from the metro, overseas and non-rail segments, we believe Midas should show better sequential earnings in the second half of the year.  However, for earnings to improve substantially, the group would still need high speed railway contracts (HSR) to be handed out. Our forecasts are maintained for now although Midas’ earnings recovery could be delayed if the award of HSR contracts is pushed out.

Associate NPRT showing good promise. Meanwhile, 32.5%- owned associate, Nanjing Puzhen posted a positive core earnings contribution for the first time in 6 quarters as it begins to deliver on its huge >Rmb9bn order book.

Recommendation
Maintain BUY, TP S$0.60. We continue to like Midas as a play on China’s resumption of its high speed railway development program as the group could potentially have 40% or more revenue exposure to the high speed railway segment.



Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 15/08/13

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