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Midas Summary

Core Content

Midas is a Singapore-listed company in the industrials sector, currently trading at SGD0.46 with a target price of SGD0.75, indicating a potential increase of 65%. The company has a market capitalization of SGD523.6M and an average daily trading volume (ADTV) of USD2M. The current price-to-book value (P/BV) is 0.9x for FY14E, which is seen as a good entry point.

The report highlights positive developments in the railway industry in China, which are expected to benefit Midas, given its role as a leading supplier of aluminium alloy extrusion profiles for high-speed train manufacturers. The government's recent announcement of five railway construction projects totaling CNY142.4b (USD22.85b) and the potential reform of the funding structure of China Railway Corp (CRC) are seen as significant catalysts.

Main Points

• Positive Industry Developments:

  • The government's new railway projects and the anticipated increase in high-speed train purchases are expected to boost demand for Midas's products.
  • CRC's high debt levels have hindered railway development, but potential reforms, including social capital participation, could resolve this bottleneck and accelerate growth.

• Earnings Outlook:

  • Midas's projected three-year EPS CAGR is 73%, driven by operating leverage.
  • The company is expected to see a significant improvement in its ROE, increasing from 1.5% in FY13 to 7.1% in FY16.

• Order Wins:

  • Midas's upstream clients, such as China Southern Railway (CSR) and China Northern Railway (CNR), have secured large orders, which could lead to Midas securing contracts in the future.
  • The report estimates that Midas could win CNY1.1b in HSR contracts in FY14E and FY15E.

• Valuation:

  • The current P/BV of 0.9x is considered undemanding.
  • The target price of SGD0.75 is based on a 1.5x P/BV multiple, which is at the lower end of its historical trading range during the last high-speed rail cycle.

Key Information

• Market Position: Midas has a historical market share of 60-70% in supplying aluminium materials to CSR and CNR.
• Financial Performance:
  • Revenue is projected to grow from CNY869.5m in FY12A to CNY4,300m in FY16E.
  • Core net profit is expected to increase from CNY27.8m in FY12A to CNY247.0m in FY16E.
  • Core EPS is projected to rise from CNY0.02 in FY12A to CNY0.20 in FY16E.
• Dividend Yield: The net dividend yield is expected to remain at 3.4% for FY14E to FY16E.
• Debt Levels: Midas's net debt-to-equity ratio is expected to increase from 31.2% in FY12A to 58.7% in FY16E, indicating a growing leverage.
• Operating Leverage: The company's operating leverage is expected to drive its earnings growth, with the utilisation rate projected to increase from 50% to 70%.
• Share Price Performance:
  • The stock has underperformed the market by 10.7% over the past three months.
  • The absolute share price change over the past three months is -9.0%.

Reiterate BUY Recommendation

• The report reiterates a BUY recommendation, citing the positive outlook for the railway industry and Midas's strong position in the supply chain.
• The current valuation is seen as a good entry point, and the company is expected to benefit from the anticipated increase in HSR orders and the potential reform of CRC's funding structure.

Key Metrics Table

Additional Information

• The company's share price performance has shown a 1.1% increase in the past month, but a -9.0% decrease in the past three months.
• The report mentions that the P/BV band is an important valuation metric, and the target price of SGD0.75 is based on a 1.5x multiple.
• Midas's gross margin is expected to be higher than previously assumed, with a 28.8% margin in 4Q13, indicating better-than-expected pricing in the HSR sector.
• The report also includes details about the company's balance sheet and cash flow, showing a growing debt and improving profitability ratios.

Contact Information

• Wei Bin: (65) 6432 1455 | weibin@maybank-ke.com.sg
• Research Offices:
  • Singapore: NG Wee Siang, Gregory Yap, Wilson Liew, etc.
  • Malaysia: Wong Chew Hann, Desmond Ch'ng, etc.
  • Hong Kong/China: Howard Wong, Alexander Lazer, etc.
  • Indonesia: Wilianto IE, Rahmi Marina, etc.
  • Philippines: Luz Lorenzo, Laura Dy-Liacco, etc.
  • Thailand: Maria Lapi, Jesada Techahusdin, etc.
  • Vietnam: LE Hong Lien, Thai Quang Trung, etc.

Disclaimer

This report is for general information purposes only and should not be considered as an offer to sell or a solicitation of an offer to buy any securities. The information provided is based on sources believed to be reliable, but no guarantees are made regarding its accuracy or completeness. Investors are advised to seek independent financial, legal, and other professional advice before making any investment decisions.