• Share price down 10.8% YTD
• But industry outlook still robust
• Expect further contract wins

Share price performance has been weak YTD

We believe Midas Holdings' weak share price performance YTD (-10.8%) has been driven by its dearth of order wins thus far. Midas has only managed to secure CNY71.9m of metro contracts for two China projects YTD, which is a pale comparison to the CNY292.4m contracts secured during the same period last year. Nevertheless, we note that order wins can be lumpy in nature.

Industry outlook remains robust; new initiatives highlighted

The important focal point is that the rail transport industry outlook remains buoyant, in our view. In line with recent media reports that China will implement measures to support its economy following recent tepid economic data, it was reported that China has now outlined a number of key initiatives during a State Council meeting chaired by Premier Li Keqianq. Zeroing in on the railway sector, it was highlighted that at least 6,600 km of additional railway lines is estimated to be added this year, an increase of over 1,000 km from 2013. The financing will partly come from the issuance of CNY150b of bonds this year and the establishment of a Railway Development Fund, with a targeted size of CNY200-300b per annum. Other railway initiatives include encouraging banks and other financial institutions to actively support railway construction projects and strengthening oversight to ensure the acceleration of railway construction and steady increase in railway investments.

Awaiting new contracts; maintain BUY

We understand that Midas is targeting to win ~CNY400-500m and ~CNY500m of metro and international rail contracts this year, respectively. The quantum of high-speed railway (HSR) order wins would have to depend on the timeline of the tender exercise by China Railway Corporation (CRC). We are expecting Midas to clinch CNY325-380m of HSR contracts within the next two months. It is not uncommon for Midas to work on the aluminium extrusion profiles even before the actual contract is signed, given its long standing and solid relationship with its customers. This will help to expedite the delivery schedule once the contract is eventually signed. Reiterate BUY on Midas, with an unchanged fair value estimate of S$0.66.

Source: OCBC Research - 4 Apr 2014