Fair value S$0.67
add: 12m dividend forecast S$0.005
versus: Current price S$0.495
Recovery under way
Midas Holdings’ 3Q13 results exceeded our expectations, with revenue jumping 48.5% YoY to CNY301.0m, or 15.8% above our forecast. While gross margin of 20.8% (-10.7 ppt YoY) disappointed, bottomline reversed from a CNY6.1m net loss in 3Q12 to a PATMI of CNY16.4m and beat our projection of CNY13.3m. Looking ahead, we expect contribution from its recent CNY167.5m high-speed railway (HSR) contract to be recognised in 4Q13 and 1Q14. We also expect Midas to secure more HSR train car related contracts in late Dec or early Jan 2014 from the second round of tender exercise by the China Railway Corporation. Our fair value estimate is increased marginally from S$0.65 to S$0.67 as we roll forward our valuations to 1.3x FY14F P/B. Maintain BUY on Midas.
Results beat expectations, but gross margin weakened sharply
Midas Holdings’ 3Q13 results exceeded our expectations, with revenue jumping 48.5% YoY to CNY301.0m, or 15.8% above our forecast. Gross margin of 20.8% (-10.7 ppt YoY) disappointed due to a change in product mix as more aluminium extrusion profile deliveries were made to the lower margin freight wagons, while there was also an increase in per unit production cost. Nevertheless, bottomline reversed from a CNY6.1m net loss in 3Q12 to a PATMI of CNY16.4m and beat our projection of CNY13.3m. This was attributed largely to a share of profit of CNY10.9m from its 32.5%-owned associated company Nanjing SR Puzhen Rail Transport (NPRT) as more train cars were delivered, versus a share of loss of CNY7.0m in 3Q12. For 9M13, revenue and PATMI increased by 20.6% and 145.6% to CNY787.5m and CNY26.4m, respectively. Current order book stands at CNY900m for Midas and CNY8.5b for NPRT.
High-speed railway train tenders gaining traction
Midas recently clinched CNY167.5m of contracts to supply aluminium alloy extrusion profiles for the manufacture of high-speed railway (HSR) train cars on 21 Oct this year. We expect the bulk of this contribution to be booked in 4Q13, with the remainder in 1Q14 due to tight delivery schedules from its customers. Meanwhile, the China Railway Corporation (CRC) recently opened the second round of HSR train car tenders on 7 Nov. This involves a total of 258 train car sets, of which 78 are of 250km/h speed and 180 are of 350km/h speed (higher value). We believe the potential market size for aluminium alloy extrusion profile suppliers may amount to ~CNY715.5m. Midas could possibly secure ~CNY325-380m of contracts from its customers from this procurement exercise in late Dec or early Jan next year, based on our estimates.
We raise our FY13 revenue and PATMI forecast by 11.0% and 27.0%, respectively. While our projection for Midas’ FY14 revenue is bumped up by 9.7%, we keep our earnings estimate intact due to a lower gross margin assumption. Rolling forward our valuations to 1.3x FY14F P/B, we increase our fair value estimate marginally from S$0.65 to S$0.67. Maintain BUY.
Publish date: 18/11/13