• FY14 results lifted by deferred tax income
• Expects revenue growth on lower margins
• Remain cautious; maintain HOLD

FY14 PATMI lifted by lower tax expense

Midas Holdings Ltd’s (Midas) FY14 results performed better than expected on lower tax expense. For FY14, revenue grew 14.8% to RMB1317.9m driven by higher business volume from its aluminium alloy extruded products division, which contributes ~98.2% of total revenue. Despite recording 26.6% and 68.5% growth in administrative expenses and finance costs, respectively, Midas’ FY14 PATMI increased 18.1% to RMB56.3m as a result of an 83.2% decline in tax expense (one-off deferred tax income of RMB17.1m). Excluding this tax impact, its FY14 PBT saw a 6.1% drop to RMB55.9m. Consequently, Midas’ FY14 revenue and PATMI formed 101.8% and 202.9% of our projections.

Remain cautious on mixed reasons

We believe Midas’ outlook remains uncertain on several mixed reasons: 1) its new light alloy division, which manufactures basic materials for wider range of industries, is expected to start commercial production from FY16 and we expect to see higher volume though at much lower margin of ~16%; however, ability to ramp up sales volume is unclear as competition will be high compared to its current core business, 2) increasing finance costs is still a challenge but we think refinancing of short-term debt at lower rate is possible given the recent rate cut by China’s central bank, 3) increasing administrative costs is also likely to continue due to new start-up plants without revenue contribution, 4) that said, its Luoyang plant, which adds capacity to existing extruded products division, is expected to start commercial production in 2H15, 5) order book remains healthy at RMB850m for core business and RMB8.5b for NPRT (32.5% owned by Midas), both with deliveries scheduled over the next few years, 6) it was awarded concessionary tax rate of 15% until 2016, and lastly, 7) impact on future orders from CSR/CNR proposed merger still an unknown.

Raise FV; maintain HOLD

We introduce FY16 forecasts and increase our previously conservative FY15 PATMI forecast by 40.6%. Based on a 0.6x target blended FY15F P/B, we raise our FV from S$0.30 to S$0.33. Maintain HOLD.

Source: OCBC Research - 3 Mar 2015