• Positive signs showing on recent tenders
• Winning award improves competitiveness
• CNY800b railway spending on track

Recent release of tenders positive for Midas

China Railway Corporation (CRC) announced on 22-Aug the first round tender released in 2014 for 232 multiple units (MUs). More recently, CRC announced the tender for 776 sets of cab integrated radio communication equipment (CIR), implying that the total number of MUs likely to be released for tenders in 2014 is 388 since two CIRs are needed for each MU with eight carriages. The total value expected is ~CNY70b and likely to be shared between China CNR Corporation (CNR) and CSR Corporation (CSR). We believe Midas Holdings (Midas) is poised to benefit since majority of its revenue is generated from manufacturing MUs’ car body through contracts with CNR and CSR. With most railway spending likely to occur in late 2014, we expect higher contribution to Midas in 1H15, which is the likely delivery date.

Winning Siemens’ global award improves competitiveness

Midas’ subsidiary, Jilin Midas Aluminium Industries Co., Ltd (JMAI), recently emerged as the overall 2014 winner of ‘Carbody’ category for an award by Siemens’ Rail Systems Division (Siemens). This award is to recognize JMAI’s work for Siemens in 2013 (evaluated against its global peers). We believe winning the award allows JMAI to have more international recognition for supplying aluminium alloy extruded products and component modules, which improves JMAI’s position to compete in international markets (i.e. exports out of China). Also, JMAI will receive a much better Supplier Classification Factor (SCLF), which is used as one of the criteria for Siemens when making sourcing decision. The improved SCLF gives JMAI an edge over its competitors to win new contracts from Siemens in the future. However, we note that although the award puts JMAI in a better position in securing new contracts, it is still too early to determine any impact on its future earnings.

Positive outlook with improved competitiveness; maintain BUY

As we think it is too early to determine any impact of winning the award and given that we did expect railway spending of CNY800b in China for 2014 to be on track, our model has already captured the positive effect of the recent tenders. Hence, we maintain BUY with an unchanged fair value of S$0.50.

Source: OCBC Research - 4 Sep 2014