Midas Holdings Limited’s (Midas) 2Q17 revenue jumped 32.1% YoY to RMB505.6m, mainly due to a 3.5% growth in its Aluminium Alloy Extruded Products (AEP) revenue to RMB381.4m, and the consolidation of results of its recently acquired Aluminium Alloy Stretched Plates (AASP) business, which added RMB109.6m to the top line. Midas’ 2Q17 overall gross margin improved 3.6ppt YoY to 31.4%, lifted mainly by a 3.6ppt improvement in AEP’s gross margin at 31.6%.

In-line with higher business volume, 2Q17 operating expenses rose 14.4% YoY to RMB68.3m, as well as a 52.1% increase in finance costs on higher interest rates and higher outstanding borrowings.

Share of profits from an associate (NPRT) also fell 33.1% YoY to RMB7.1m, mainly due to different project mix and higher operating expenses. Consequently, coupled with a 43.5% YoY decline in income tax, 2Q17 PATMI surged 197.1% to RMB55.5m.

For 1H17, PATMI jumped 193.8% YoY to RMB84.3m, forming 79.3% of our FY17 forecast. The earnings growth in 1H17 was largely due to inclusion of AASP business, coupled with an improvement in gross margin of its AEP segment.

Pending more details from management, maintain HOLD on Midas but put our S$0.245 FV under review..

Source: OCBC Research - 15 Aug 2017