• 3Q16 boosted by associate
• Fewer high speed train orders for 9M16
• Maintain HOLD

Revenue from new business offset decline from core business

Midas Holdings Limited’s (Midas) 3Q16 revenue grew 2.1% YoY to RMB420.8m, mainly due to the consolidation of results of its recently acquired Aluminium Alloy Stretched Plates (AASP) business, but offset by a 27.3% YoY decline from its core Aluminium Alloy Extruded Products (AEP) segment. AEP revenue fell mainly due to fewer high-speed train orders this year compared to last year.

As a result of lesser train orders that command higher margins, 3Q16 AEP GPM fell 1.3ppt YoY to 24.8%, and led to a 1.9ppt decline in overall blended GPM to 24.0%. 3Q16 selling and distribution expenses’ 19.7% YoY growth were more than offset by a 17.5% decrease in finance costs on lower interest rates of bank borrowings.

In addition, 3Q16 was boosted by a 391.9% YoY jump in the share of profits of an associate (NPRT) due to increased delivery to its customers during the quarter. Consequently, 3Q16 PATMI jumped 62.5% YoY to RMB22.6m. For 9M16, PATMI beat our expectations as it grew 40.9% YoY to RMB51.2m, and formed 92.8% of our FY16 forecast.

Strong order book at associate helps

Outlook of NPRT remains positive, announcing last week that it has secured four new metro train car supply contracts worth a total of ~RMB2.6b. Deliveries for the four contracts are slated between Aug 17 and Mar 19. The new contracts further add to NPRT’s already strong order book, which has accumulated over ~RMB7.2b in new projects as at 16 Nov 16. We believe Midas will certainly benefit through its 32.5% stake in NPRT. Separately, while its diversification strategy is making good progress, we still prefer to wait for better clarity over its new business segment that produces lower margin cold-rolled aluminium alloy plates and sheets which is expected to commence commercial production in 1Q17.

Update assumptions to include new business

On strong 3Q16 results and consolidation of new business, we update our assumptions and increase our FY16/17F PATMI by 23.2%/18.8%. Consequently, as we roll-forward to 0.5x FY17F P/B, maintain HOLD with a slightly lower FV of S$0.245 (prev: S$0.250).

Source: OCBC Research - 24 Nov 2016