Fair value S$0.65
add: 12m dividend forecast S$0.005
versus: Current price S$0.49
Keeping the faith
• High-speed contracts will eventually come
• Order wins will be re-rating catalyst
• Unchanged FV estimate of S$0.65
The recent public tender for 91 high-speed train sets by China Railway Corporation (CRC) was awarded to CSR Qingdao Sifang, which we believe is a disappointment for Midas Holdings since Midas is not its major supplier.
However, we believe that Midas will still be able to secure high-speed contracts in 4Q13, as our channel checks reveal that CRC will also be awarding contracts for 51 high-speed train sets to China CNR via a competitive negotiation. Midas is a key supplier of aluminium alloy extrusion profiles for high-speed trains to China CNR. We estimate potential addressable market size of CNY153m for Midas for this round of procurement. We understand that there may also be another round of procurement by CRC by year end, while 2014 will likely see the bulk of high-speed train car purchases by CRC under China’s 12th Five-Year Plan (2011-2015). Maintain BUY and S$0.65 fair estimate on Midas.
According to the China Railway Corporation (CRC) website, the results of its public tender for 91 high-speed train sets (speeds of 250 km/h) were released on 6 Sep 2013. CSR Qingdao Sifang, a subsidiary of Hong Kong listed CSR Corp, clinched all the orders. This is a welcome relief to the railway industry as it is the first high-speed train car tender by CRC (formerly Ministry of Railways) after a hiatus of more than two years. However, we believe this news is disappointing for Midas Holdings, as it has only managed to supply small quantities of aluminium alloy extrusion profiles to CSR Qingdao Sifang in the past. Hence we expect Midas to miss out on this tender. Nevertheless, Midas is actively engaging them and we believe Midas may be able to penetrate into their supply chain in the future.
But more contracts that can be won
Besides this open tender, we understand that CRC also carries out competitive negotiations with train manufacturers directly, and results of these negotiations may not be published on CRC’s website. According to our channel checks, there are 68 other train sets (speeds of 350 km/h) which will be procured by CRC under this format. In total, 108 out of the 159 train set orders will be awarded to CSR Corp, with the remainder going to China CNR. As Midas is a key supplier to CNR Tangshan and CNR Changchun (both subsidiaries of China CNR), we expect Midas to still secure high-speed contracts in 4Q13. Assuming each 350 km/h train set costs CNY200m and the value of the train car body forms 1.5% of total train set value, we estimate potential addressable market size of CNY153m for Midas for this round of procurement (based on 51 train sets). We understand that there may also be another round of procurement by CRC by year end, while 2014 will likely see the bulk of purchases by CRC under China’s 12th Five-Year Plan from 2011 to 2015.
In light of the aforementioned factors, we expect order wins to be a re-rating catalyst for Midas’ share price. Hence we maintain our BUY rating and fair estimate of S$0.65 on Midas, which is pegged to 1.3x blended FY13/14F P/B.
Publish date: 11/09/13