Target Price: SGD0.75
2014 Outlook An Optimistic One
China’s plan to keep rolling out tenders for high speed trains bodes well for Midas as it commands a 60% share in China’s railway train car market. Margins going forward are likely to be lower for FY13 as the company took on more lower-margin orders during the year, but are expected to improve as it secures more orders over the next few quarters. Maintain BUY, with TP of SGD0.75.
¨ More orders expected. China Railway Corp (CRC) called for tenders for train cars in 2H13. China CSR Corp (CSR) (NR) and China CNR Co. (CNR) (NR), both of which are Midas’ major customers, are expected to secure most of the orders. On top of this, as the preferred partner to Alstom and Bombardier, Midas is also in a good position to secure more train car orders that will boost its current CNY900m orderbook, with deliveries expected between 2014 and 2015. Its 35%-JV, NPRT, is also expected to chalk up good performance as the order flow improves. NPRT’s orderbook totaled CNY8.5bn as at end-3Q13. These positive events should bolster the group’s FY14 PATAMI growth.
¨ Margins likely to improve. As Midas had taken on more lower-margin orders to utilize its capacity while operating expenses have gone up, its FY13 margins are likely to narrow. However, margins are expected to improve in FY14, supported by increased orders as well as higher contributions from NPRT.
¨ Growth outside China. Asian countries also have plans to improve inter-connectivity via high-speed rail. Closer to home, Singapore and Malaysia have plans to build a high speed railway linking both countries. As a preferred partner of global train manufacturers Alstom and Bombardier, Midas is in a good position to benefit from this trend.
¨ Maintain BUY, TP SGD0.75. We are estimating a 20% growth in FY13 PATAMI. With orders expected to flow in strongly in FY14, we foresee solid revenue growth while PATAMI growth may strengthen even more due to NPRT’s strong contribution by then.
Publish date: 23/12/13