• To acquire aluminium business in China
• Fully financed by issuing new shares
• Maintain HOLD

Total consideration may go up to S$264m

Midas Holdings Limited (Midas) announced the proposed acquisition of the entire issued share capital of Huicheng Capital Limited (HC) from seven different individuals (vendors) for an aggregate consideration of up to S$264m.

The maximum consideration comprises

1) an initial consideration of S$166.3m for six of the seven vendors, to be wholly satisfied by the issuance of 462m shares of Midas at S$0.36/share; and

2) an earn-out consideration of up to S$97.7m, applicable only to HC’s major shareholder, Chen Wei Ping, and shall be wholly satisfied by the issuance of up to 271m shares of Midas at S$0.36/share.

This acquisition will be entirely financed by issuing new shares, with no cash involved. The issue price of S$0.36 represents an 18.03% premium to 27-Nov close and a 10% premium to Midas’ 1-year volume weighted average price of ~S$0.33.

Complementary product offerings

With Midas’ new Jilin Midas Light Alloy (JMLA) plant expected to commence commercial production of cold-rolled plates and sheets in 1H16, we believe this acquisition is made with the aim to expand Midas’ product offerings and widen customer base.

HC is the sole shareholder of Dalian Huicheng (DH), which specialises in aluminium products. DH’s main products include aluminium alloy stretched plates, hot-rolled aluminium alloy plates and coils, and we note that JMLA does not have these capabilities.

In our view, with DH already selling these raw materials across multiple industries comprising aviation, aerospace, rail transportation and petrochemical companies, we believe the acquisition allows Midas’ JMLA to have a presence in these industries through crossselling between JMLA and DH.

Without the need to establish a strong track record and qualifying as a certified supplier in industries with strict controls, the acquisition essentially gives Midas a head start.

Pending approvals; maintain HOLD

However, we note that this transaction will result in a dilution of existing shareholders’ ownership (up to 60% increase in share base). Pending approvals from the relevant authority (e.g. SGX, HKEx) and shareholders, we keep our forecasts unchanged for now. Maintain HOLD with the same FV of S$0.33.

Source: OCBC Research - 4 Dec 2015