Midas Holdings Ltd’s (Midas) 3Q14 results showed huge disappointment as it came in way below our expectation. While revenue grew 7.7% YoY to RMB324.2m on the back of higher revenue from its Aluminium Alloy Extruded Products Division, PATMI plunged 91% to RMB1.5m due to higher start-up and finance costs arising from its new plants. Midas’ 3Q14 administrative and finance expenses jumped 42.1% and 117.0% to RMB36.5m and 35.5m respectively, eroding the 6.2 ppt gain in gross profit margin of 27.0%.

A 96.9% drop in share of profits of an associate, Nanjing SR Puzhen Rail Transport Co Ltd (NPRT) further contributed to a lower PATMI. 9M14 revenue rose 21.6% to RMB957.3m while PATMI dropped by a significant 19.3% to RMB21.3m, as they formed 70.5% and 56.2% of our FY14 projections, respectively. We expect higher start-up and finance costs to continue into 2H15 as we estimate commercial production from the new plants will only gradually commence from 4Q15. Pending a conference call with management later in the morning, we put our BUY rating and FV of S$0.50 under review.

Source: OCBC Research - 17 Nov 2014