Government  to  pour  in  RMB650bn  in  2013.  This  is  slightly  more  than  the  RMB631bn spent in 2012, as the government strives to achieve the goals set out in its 12th Five-year (2011-2015) plan for the rail industry. In order to achieve its goal of having a "four vertical and  four  horizontal" high-speed  railway  network  by  2015,  the  government  may  have  to spend  at  least  an  estimated  least  RMB500bn  on  railway  construction  in  each  of  the  next three years, With this number of railways anticipated to come up, we expect some orders for high-speed train cars to start flowing.  

Preparing  for  years  beyond  2015.  Midas,  which  plans  to diversify  into  the production of aluminium alloy plates and sheets, has set up a JV company with Jilin Kaitong Engineering, in  which  it  has  a  55%  stake.  It  is  building  a  plant  with  an  expected  capacity  of  200,000 tonnes, which is envisaged to be operational in 2015 when the government's plans for the rail  industry  are  expected  to  come  to  fruition.  Aluminium  sheet  plates  can  be  used  in  the aviation, shipbuilding and automobile industries. As part of the funding for this plant will be from  bank  loans,  this  will  raise  Midas'  net  gearing  going  forward.  Management  has indicated that its net gearing could go up to ~40% from 22% as at 3Q12 as it expands its operations.

Things  to  pick  up  in  2013. While Midas' order book deliveries are expected from FY13, we  think  the  bulk  could  be  delivered  in  FY14  and  FY15  as  the  government  pushes  to achieve its 2015 target. Management has highlighted that since it generally takes between 18 and 24 months to deliver an order, any order secured now is likely  to be handed over from 2014 onwards. This will give a boost to the company's FY14 earnings.

Source: OSK