Outlook  is beginning to look positive, from FY13. Midas recently announced a series of order wins, with the bulk of delivery expected between 2013 and 2015.  This  is  supported  by  the  Chinese government's plans to increase infrastructure spending, especially on rail development. More contract-wins by  Midas  are likely to be announced as the government pushes through with its investment plans. While we are expecting a weak FY12 (3Q12 and 4Q12 are expected  to  be weaker YoY and possibly flat QoQ), a recovery seems likely from  FY13.  We  are  recommending BUY with a revised TP of S$0.50, for the potential recovery.

Backdrop  of  weaker  economy  =  more infrastructure spending. In order to boost   economic  growth,  the  Chinese  government  is  rolling  out  more investments  in  railway construction. It has approved plans for a total of 25  new  subway  and inter-city rail projects (worth over RMB800b), up till 2018,  giving  a  clearer  visibility  for  potential order wins from train makers,  which  would  bode  well for Midas. The government has targeted to spend RMB67b / month on railway construction for the rest of this year. The Chinese   government   is  said  to  be  increasing  its  targeted  railway infrastructure investment to RMB496b this year, up from RMB470b.

Supplies  to  other  industries  as  well.  To  reduce  its reliance on the railroad  sector,  Midas  is  diversifying  into  supplying aluminium alloy tubing  to  one of the leading power industry players in China. At the same time, Midas (through its 55%-owned JV) is building a factory (operations to start  by  2015)  to  provide  aluminium  sheet  plates  for  the aviation, shipbuilding and automobile sectors.

FY12 will be lacklustre. 2H12 is likely to remain weak, as there are few orders to be delivered during this period. With the recent stimulus for the
railway industry, we believe Midas would be able to grow its order book, increase the utilisation at its lines and progress towards a recovery from
FY13. During 2009 and 2011 when there was good order flow, Midas traded above 2.0x P/B. Given the positive outlook for the industry and the
potential order flows, we think Midas should trade higher than its current 0.8x P/B. Pegging it to 1.0x FY13 P/B, we arrive at a TP of S$0.50. We
upgrade our recommendation to BUY.

Strengthening order book. Midas expects to be able to add RMB400m to its order book by end FY12. To date, its 32.5% JV company, NPRT has secured five contracts (worth over RMB3.0b), while its own aluminium division has secured four contracts (worth RMB201.5m), with delivery between 2013 and 2015. This is underpinned by the Chinese government's plan to boost investments in railway construction. It has approved plans for a total of 25 new subway and inter-city rail projects (worth over RMB800b), which could translate into more potential orders from train makers. With its market share in the rail transport industry, Midas is in a good position to benefit from this. The government has targeted to spend RMB67b / month on railway construction for the rest of this year. The Chinese government is also said to be increasing its targeted railway infrastructure investment to RMB496b this year, up from RMB470b.

NPRT likely to turnaround in FY13. Given the contract wins YTD, with deliveries from 2013, we think NPRT would be able to record profits in FY13, versus a loss in FY12. This would contribute to Midas' earnings growth in FY13.

New JV to diversify business. Midas established a new JV (55% stake) to provide aluminium sheet plates for the aviation, shipbuilding and automobile sectors. It is currently building a factory for this purpose. This factory is expected to start operations by 2015, after obtaining the necessary certification to comply with its potential customers' requests.

For Financial Summary please click to view the report attached.

Source: OSK