Midas Holdings Limited’s (Midas) FY15 results exceeded our expectation as revenue grew 14.7% YoY to RMB1.51b, driven by higher revenue from its Aluminium Alloy Extruded Products (AEP) segment, which rose 15.9% to RMB1.50b, mainly due to increase in business volume and contribution from its new Luoyang plant.

Midas’ FY15 gross margin improved 0.3ppt to 26.9% on higher gross margin from AEP. FY15 selling and distribution expenses jumped 21% to RMB73.4m while administrative expenses grew 16.4% to RMB172.6m.

\Finance costs came in 8.2% higher at RMB139.0m as ~RMB124.7m of the interest on borrowings used to finance construction of PPE for new production lines were capitalised.

As we expected, administrative expenses were due largely to higher staff costs to support its new plants. Consequently, as income tax jumped 614.3% to RMB20.0m, FY15 PATMI recorded a slight 1.5% growth to RMB57.2m, but still formed 116.9% of our FY15 forecasts.

We will update accordingly after speaking with management. Maintain HOLD on Midas but put our FV of S$0.29 under review for now.

Source: OCBC Research - 1 Mar 2016