• FY13 PATMI grew 71.3%
• Awaiting new high-speed railway order wins
• Industry outlook remains positive

FY13 results below our expectations

Midas Holdings reported a 66.3% YoY jump in its 4Q13 revenue to CNY360.1m and a 24.7% increase in PATMI to CNY21.3m, such that FY13 revenue and PATMI rose 32.0% and 71.3% to CNY1,147.6m and CNY47.7m, respectively. Although topline was within our expectations (0.8% above our forecast), PATMI missed by 7.3% due largely to a lower-than-estimated share of profits from its associate Nanjing SR Puzhen Rail Transport (NPRT) and larger-than-expected operating expenses (partly due to start-up costs for its Jilin Midas Light Alloy division). Current order book stands at CNY900m for Midas and CNY8.5b for NPRT. A final DPS of 0.25 S cent was declared, bringing full-year dividends to 0.5 S cent/share, similar to FY12 and our forecast.

Expect order wins to come soon

While we are disappointed that Midas has not announced any high-speed railway (HSR) order wins yet from the second round of tender from China Railway Corporation (CRC), we believe it is only a matter of time before this materialises, given Midas’ strong relationship with China CNR Corp. We reiterate our expectations for a contract size worth CNY325-380m to be secured by Midas. Meanwhile, the industry outlook for China’s railway sector remains positive, as CRC has targeted CNY630b of railway fixed asset investments this year, a portion of which will be used to build more than 6,600 km of new railway lines. Another positive signal stems from China’s increasing willingness to tap funding from more sources, including private investments.

Maintain BUY

While we remain optimistic on Midas’ recovery prospects, we opt to reduce our FY14 PATMI forecast by 19.8% as we incorporate a lower share of profits contribution from NPRT and higher start-up costs for its Jilin Midas Light Alloy division in our model. This still translates into a forecasted PATMI growth of 161.9% in FY14. Maintain BUY on Midas, with a revised fair value estimate of S$0.66 (previously S$0.67), pegged to 1.3x FY14F P/B. Key risks to our projections include a delay in HSR train car contract tenders from CRC and metro contracts from provincial governments.

Source: OCBC Research - 4 Mar 2014