Midas Holdings Limited’s (Midas) 3Q15 results came in above our expectations as revenue grew 27.2% YoY to RMB412.2m, driven by higher revenue from its Aluminium Alloy Extruded Products (AEP) segment, which grew 28.1% to RMB408.3m. However, due to slight change in product mix for its AEP segment, the group’s 3Q15 gross margin declined 1.1ppt YoY to 25.9%. 3Q15 selling and distribution expenses decreased 1.4% YoY to RMB16.5m but administrative expenses grew 17.6% to RMB42.9m.

Finance costs came in 1.2% YoY lower to RMB35.1m as ~RMB30m of the interest on borrowings used to finance construction of PPE for new production lines were capitalised. As we expected, higher administrative expenses were due largely to higher staff costs to support its new plants. Consequently, while income tax jumped 757.8% YoY to RMB5.8m, 3Q15 PATMI recorded a 845.3% YoY growth to RMB13.9m, which formed 30.3% of our FY15 forecasts.

We will update accordingly after speaking with management. Maintain HOLD on Midas but put our FV of S$0.31 under review for now.

Source: OCBC Research - 16 Nov 2015