Midas Holdings (Midas) yesterday announced that its JV company, CRRC Nanjing SR Puzhen Rail Transport Co., Ltd (NPRT), which is 32.5% owned by Midas, has secured a metro train car supply contract worth RMB543m in Shanghai, China.

The supply contract was awarded for the Shanghai Metro Line 2 with delivery scheduled between Jan 18 and Nov 18. We believe this contract win will be positive for Midas in FY18, with other past NPRT contract wins announced to contribute to FY17 as well. However, we expect lower overall margins ahead with contributions from its new businesses – aluminium stretched plates and aluminium light alloy.

With the aluminium light alloy plant targeted to start in 2Q/3Q17, it earnings for FY17 may also be affected depending on Midas’ ability to ramp up this new business to turn profitable as soon as possible.

All said, we opt to keep our forecasts unchanged for now pending Midas’ upcoming 1Q17 earnings. Maintain HOLD with the same FV of S$0.255.

Source: OCBC Research - 11 Apr 2017