Wednesday, October 23, 2013

Midas Holdings : High speed mode reactivated (CIMB)

Midas Holdings
Current S$0.48
Target S$0.74
High speed mode reactivated

 Midas announced that it has securedRmb167.5m worth of high speed rail contracts for delivery of 51 train setsover2013-14.This is within our expectations of Midas securing a majority of the 51 train set orders issued to CNR in Sep due to Midas being its key supplier in the past.

Given that this is Midas’s first high speed rail (HSR) contract win since orders were suspended in China in 2011, we believe this news is likely to provide a strong re-rating catalyst for the stock. Maintain Outperform, as we roll forward our target price to $0.74, based on 1.29x CY14P/BV(20% discount to mean P/BV from 2010-11).

What Happened
Midas announced today that it has secured HSR contracts worth Rmb167.5m from CNR Changchun and CNR Tangshan. Delivery for the 51 train sets is expected to take place over 2013-14, with the bulk of the orders to be delivered in 4Q13. This marks the first HSR contract that Midas has won since the former Ministry of Railways (MOR)suspended HSR orders in Jul 2011. The China Railway Corporation recently resumed HSR orders in Sep, giving out contracts for a total of 159 train sets. 108 train sets were awarded to CSR Qingdao Sifang, while 51 were given to CNR. While Midas is a preferred supplier to CNR, it has not clinched orders from CSR Qingdao Sifang in the past.

What We Think
This news is largely within our expectations of Midas securing a majority of the 51 contracts awarded to CNR, due to Midas’s position as a key supplier to CNR in the past. Midas also has a competitive advantage in having the dies to produce extrusion profiles for the CRH3 models ordered.

Historically, the MOR has issued an equal proportion of HSR orders to CSR and CNR. We expect CNR to secure more contracts over the next few rounds of tenders, which translates into more order wins for Midas. The market expects orders for another 131 train sets in Nov-Dec. Assuming CNR wins orders for 94 of the 131 train sets (50-50 split of total orders to date between CNR and CSR), and Midas secures contracts for all 94 train sets, this translates into a potential order win of Rmb309mfor Midas (assuming same price per train car) in the next round of procurement.

What You Should Do
We expect Midas’s share price to react positively to this news. Further HSR contract wins are likely to catalyse the stock. Thus, we keep our Outperform stance.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 21/10/13

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