Midas Holdings Limited’s (Midas) 1Q17 revenue grew 31.3% YoY to RMB398.4m, mainly due to the consolidation of results of its recently acquired Aluminium Alloy Stretched Plates (AASP) business, which added RMB76.6m to the top line. Its core Aluminium Alloy Extruded Products (AEP) segment revenue in 1Q17 grew 6.0% YoY RMB320.8m.

1Q17 overall GPM fell 3.1ppt YoY to 27.9%, due to a 1.2ppt decline in AEP’s GPM to 27.9% as well as higher proportion of contribution from AASP that commanded a much lower GPM of 19.8% during the quarter.

Midas recorded a 13.3% YoY growth in 1Q17 operating expenses to RMB68.3m, as well as a 53.3% increase in finance costs on higher interest rates and higher outstanding borrowings.

However, these higher expenses were more than offset by a 359.3% YoY jump in the share of profits of an associate (NPRT) due to increased delivery to its customers as well as a RMB13.7m unrealized foreign exchange gain arising from USD denominated MTN. Consequently, 1Q17 PATMI was in line with expectation as it grew 187.6% YoY to RMB28.7m, and formed 27.7% of our FY17 forecast.

Pending more details from management, maintain HOLD on Midas but put our S$0.255 FV under review.

Source: OCBC Research - 15 May 2017