• 1Q17 within expectations
• Won contracts worth RMB521m
• Wait for ramp up and stabilization of new light alloy business

1Q17 Earnings Lifted by Associate

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, while its main Aluminium Alloy Extruded Products (AEP) segment revenue grew 6.0% YoY to 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% and inclusion of AASP that commanded GPM of only 19.8%.

Midas’ 13.3% YoY growth in 1Q17 operating expenses to RMB68.3m and the 53.3% increase in finance costs 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. Consequently, coupled with a RMB13.7m unrealized foreign exchange gain arising from USD denominated MTN, 1Q17 PATMI was within expectations as it grew 187.6% YoY to RMB28.7m, and formed 27.7% of our FY17 forecast.

Wait for Clarity Over Execution of New Light Alloy Business

Looking ahead, we expect core business (i.e. AEP segment) revenue to pick up but we expect overall GPM to fall to ~26-27% with contributions from AASP and the targeted start of commercial production at its new start-up aluminium light alloy plant (JMLA) from 3Q/4Q17. Midas also announced that it has been awarded 13 international and PRC supply contracts worth a total of RMB520.9m – three from Europe (RMB203m), three from North America (RMB99m), one from Middle East (RMB28m) and six in PRC (RMB191m).

These contracts, which are positive for Midas’ growth, are slated for delivery progressively between 2017 and 2019. All said, we believe Midas’ growth outlook still largely hinges on the ramp up and execution of its new business – JMLA.

Maintain HOLD

With in-line 1Q17 results, we made slight adjustments to our forecasts and lower our FV from S$0.255 to S$0.245 (based on 0.6x FY17F P/B). Maintain HOLD as we wait for clarity over execution of its JMLA business.

Source: OCBC Research - 18 May 2017