2Q13 results largely within expectations. Midas 2Q13 results were in line with our expectations. Revenue rose 29% YoY to RMB284m while net profit improved significantly to RMB15m, hugely better compared to only RMB1.6m last year and a loss of RMB6m last quarter. We expect a better performance in 2H13 as utilization rates gradually recover and NPRT turns profitable. The potential big catalyst for the stock is still the resumption of high speed train tenders, which we expect to happen in the next two months. The current 1x P/B valuation provides a solid floor to the share price. Maintain BUY and target price of SGD0.75 (based on 1.5x P/B relative to the mean of 2.1x).

Expect better performance in 2H13. We expect around RMB400m new contract wins from the metro sector and overseas markets (such as Europe, Singapore and Brazil) to add to current RMB700m order book for the rest of the year. The utilization rate has in fact gradually improved to about 50% in 2Q. Better performance in 2H13 could be expected with more contract wins and improving utilization.

Turnaround of NPRT set to continue. NPRT (the JV with CSR) is a big reason for the turnaround in this quarter. Profit contribution from NPRT improved to RMB3m, compared with RMB14m loss last year and RMB4m loss last quarter. We expect more train cars to be delivered to customers in 2H. Turnaround of NPRT seems sustainable given the current rich order book of RMB9b.

High speed train orders could come soon. Management remains optimistic on the outlook of the company over the mid to long term as the government has committed to increasing the investment in the rail industry. Recent intensive bond issuance and upwardly revised investment targets by China Rail Corp (CRC) suggest that potential resumption of high speed train orders could come soon than later.

Recommendation. At the current 1x P/B, we do not see much downside risk to the share price. We believe that the stock could be significantly re-rated once high speed train orders come back. We maintain our BUY rating and TP of SGD0.75.

Source: Maybank Kim Eng Research - 16 Aug 2013