4Q13 net profit up a strong 16.7% YoY to CNY17.8m, with both gross and operating margins improving on higher utilisation rate and better product mix.

Strong order win momentum in FY13 (CNY812.5m) should spark an earnings rebound from FY14 onwards.

Reiterate BUY on undemanding valuation of 0.9x FY14E P/BV and three-year EPS CAGR of 73.0%. Maintain TP of SGD0.75.

4Q13 results above expectations

Midas reported a 16.7% YoY jump in 4Q13 net profit to CNY17.8m, as revenue soared 66.3% YoY to CNY360.1m. Both gross and operating margins surprised on the upside, expanding to, respectively, 28.8% and 11.5% from a year ago on higher utilisation rate and better product mix. However, contribution from Nanjing SR Puzhen Rail Transport, its JV with China Southern Railway (CSR), missed our forecast, resulting in a lower net margin of 4.9%.

What’s Our View

We believe the worst may be over for Midas as the strong order win momentum seen in FY13 (CNY812.5m worth of orders), especially from the high-speed rail sector, should spark an earnings rebound from FY14 onwards. We forecast a three-year EPS CAGR of 73.0%.

China Railway Corp (CRC) announced the results of the second round of high-speed train open bid (258 train sets) last December. CSR won 62% of the total orders and China Northern Railway (CNR), 38%. We expect Midas to be able to secure supply contracts from CNR soon, given that it has hitherto been CNR’s preferred supplier.

We reiterate our BUY call, supported by an undemanding valuation of 0.9x FY14E P/BV and an EPS CAGR of 73.0% over the next three years. Our TP of SGD0.75 is intact, pegged to 1.5x FY14E P/BV.  

Source: Maybank Kim Eng Research - 3 Mar 2014