Thursday, November 21, 2013

Midas - A Strong 3Q13 (DMG)

Midas - A Strong 3Q13

Midas' 3Q13 PATAMI was at CNY16.4m vs a CNY6.1m loss a year ago. This was boosted by its associate NPRT booking CNY10.9m in earnings (vs a CNY7.0m loss in 3Q12). Operating profit was lower y-o-y, dragged down by lower gross margins and higher operating costs. Nonetheless, the company remains in a good position to secure more orders over the next few quarters. Maintain BUY with a TP of SGD0.75.

Revenue  grows  but  gross  profit  is  lower.  Midas'  3Q13  revenue surged 48.5% y-o-y to CNY301.0m, as utilisation of its production lines continued to improve (3Q13: 55%, 2Q13: 50%). However, as it took on more low-margin jobs, the gross margin dipped to 20.8% (2Q13: 22.5%; 3Q12: 31.5%). Going forward,  we expect profitability to improve as more high-speed train orders, which command higher margins, are secured.

Order  flow  is  improving.  The  China  Railway  Corporation  recently released a second tender for train cars. China CSR Corp (1766 HK, NR) and  China  CNR  Co  (601299  CH,  NR)  secured  the  bulk  of  the  first tender's orders a few months ago. The results of the second tender are expected to be announced in Dec 2013, with China CSR and China CNR being the likely winners again. As both companies are major customers of Midas, it is in a good position to secure more orders. This is expected to boost its current orderbook of CNY900m, with deliveries scheduled for 2014 and 2015. In the meantime, its associate Nanjing SR Puzhen Rail Transport (NPRT)'s orderbook is currently at CNY8.5bn.

Higher revenue estimates, but at lower gross margin assumptions. Midas'  FY13  PATAMI  is  expected  to  be  boosted  by  NPRT's  strong performance  this  year.  NPRT's  3Q13  performance  has  already exceeded  our  FY13F  numbers.  We  raise  our  revenue  estimates  after taking  into  account  the  expected  continued  improvement  in  Midas' capacity utilisation. However, we lower our gross margin assumption for FY13  and  factor  in  higher  operating  expenses,  which  results  in  our PATAMI estimate of CNY32.9m for the  period (from CNY80m). FY14 is expected  to  be  stronger,  as  gross  margins  improve  along  with  higher revenue and strong contributions from NPRT. Maintain BUY.

Source/Extract/Excerpts/来源/转贴/摘录: DMG-Research,
Publish date:20/11/13

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