Midas Holdings Limited’s (Midas) 2Q15 revenue grew 11.3% YoY to RMB374.3m, driven by higher revenue from its Aluminium Alloy Extruded Products Division, which grew 13.5% to RMB370.0m. Even though Midas recorded a 2.3ppt YoY improvement in gross margin to 27.7%, selling and distribution as well as administrative expenses grew 35.6% and 5.1% to RMB18.5m and RMB40.7m, respectively. As we expected, these increases in expenses are due largely to start-up costs for its new plant.

In addition, finance costs increase 25.5% to RMB38.7m due to interest for borrowings, bank charges and costs relating to discounted notes receivables. Consequently, as income tax plunged 71.4%, 2Q15 PATMI recorded a 39.4% YoY growth to RMB11.6m. For 1H15, on similar reasons as 2Q15, revenue rose 9.7% to RMB694.9m while PATMI grew 13.4% to RMB22.5m, forming only 46.7% of our FY15 forecast. Pending management briefing later, we maintain our HOLD rating on Midas but put our FV of S$0.375 under review for now.

Source: OCBC Research - 17 Aug 2015