Kim Eng on 7 Mar 2012
Don’t hold your breath for a turnaround. As we had warned, Midas’s recent 4Q11 results were lacklustre. With China’s rail industry remaining sluggish, we are convinced that any turnaround in fortunes for Midas will likely come after this year.
Delivery to customers painfully slow. Revenue slipped by 19% QoQ during 4Q11, a clear sign that delivery to customers had been painfully slow. With new capacity coming on-stream, inventory build-up in the quarter alone totalled Rmb100m. As the first quarter is seasonally weaker, we are already anticipating another disappointing quarter.
Some silver linings. Midas was awarded a “New High Tech Enterprise” tax status in China, enabling it to enjoy a concessionary tax rate of 15% for three years versus a normal tax rate of 25%. This propped up its profitability in 4Q11 as tax provisions fell significantly. Nanjing Puzhen Rail Transport (NPRT), its 32.5%-owned associate, also swung around and was operating in the black again. NPRT has an orderbook of Rmb7b but its execution has been too inconsistent to provide any clear visibility.
Tie-up with Kaitong Engineering. Midas recently entered into a joint-venture agreement with Kaitong Engineering to focus on light aluminium alloy products for other industries, such as aviation and shipping. Kaitong, which is a privately-held local business group with myriad interests in China, will hold a 45% stake via an equity injection of US$45m. However, the gestation period for this JV will be long as it will be a greenfield project and contributions will start to flow in after 2015.
Trading below book. The stock is trading at 0.8x P/BV, which we believe will provide a very strong floor to share price. Midas’s book consists mainly of property, plant and equipment built up over the past 2-3 years in support of China’s rail industry.
Maintain Hold. Our FY12 earnings estimates are significantly below the consensus, which we deem to be too optimistic. Midas has a current orderbook of Rmb800m, but this may be quickly depleted if it fails to secure any major contract wins this year. Our SOTP-based target price is raised slightly to $0.41, pegged at a 20% discount to its book value. Maintain Hold.
Showing posts with label Midas. Show all posts
Showing posts with label Midas. Show all posts
March 7, 2012
March 1, 2012
Midas Holdings
OCBC on 1 Mar 2012
Midas Holdings’ (Midas) FY11 results were within our expectations. The 22.2% decline in PATMI to RMB187.4m was attributed to higher operating expenses, finance costs and further exacerbated by a sharp 81.9% plunge in contribution from its associate. A final dividend of 0.5 S cents was declared (total FY11 DPS: 1 S cent), in line with our expectations. Outstanding order book stands at ~RMB800m. While near-term weakness should still persist, there are increasing signs that China’s Ministry of Railways could resume the tendering of high-speed rail contracts and vehicle procurements again soon. Hence we ascribe a higher target peg of 11x (previously 9x) to Midas’ FY12F EPS, in line with the average forward PER of its industry peers. This raises our fair value estimate from S$0.31 to S$0.39. Maintain HOLD.
FY11 earnings within expectations
Midas Holdings (Midas) reported its FY11 results with revenue increasing 4.9% to RMB1,080.7m and PATMI dipping 22.2% to RMB187.4m. Top-line met 94.9% of our projections, but bottom-line was 1.4% above our estimates. The decline in earnings was attributed to higher operating expenses, finance costs and further exacerbated by a sharp 81.9% plunge in contribution from its 32.5%-owned associate Nanjing SR Puzhen Rail Transport (NPRT). Midas has an outstanding order book of ~RMB800m at end FY11, while order book for NPRT stands at ~RMB7b. A final dividend of 0.5 S cents was declared (total FY11 DPS of 1 S cent), in line with our expectations and similar to FY10’s 1 S cent dividend.
Boom days over, but growth still likely
It was reported that total railway construction spending in China hit RMB461b in 2011, or 23% short of the Ministry of Railway’s (MOR) target which was set in May 2011, before the catastrophic high-speed train crash in July. Funding for railway projects has also been a key concern for the industry, but recent fund raising activities by MOR, CSR Corp and China CNR suggest that the former could restart the tendering of high-speed rail contracts again soon. Midas would be a key beneficiary when contract wins flow down from its key customers.
Maintain HOLD
One positive from 4Q11 was that Midas’ Aluminium Alloy Division managed to secure concessionary tax rates of 15% for three years following its qualification as a high-tech enterprise in Nov 2011. We ascribe a higher target peg of 11x (previously 9x) to Midas’ FY12F EPS, in line with the average forward PER of its industry peers. This is supported by the improving market risk appetite and re-rating of China railway-related stocks due to expectations of a recovery in the sector. Our fair value estimate increases from S$0.31 to S$0.39. Notwithstanding our higher fair value, we opine that Midas’ earnings would need to pick up more quickly from its recent doldrums in order to justify its strong YTD rally. As such, we maintain HOLD.
Midas Holdings (Midas) reported its FY11 results with revenue increasing 4.9% to RMB1,080.7m and PATMI dipping 22.2% to RMB187.4m. Top-line met 94.9% of our projections, but bottom-line was 1.4% above our estimates. The decline in earnings was attributed to higher operating expenses, finance costs and further exacerbated by a sharp 81.9% plunge in contribution from its 32.5%-owned associate Nanjing SR Puzhen Rail Transport (NPRT). Midas has an outstanding order book of ~RMB800m at end FY11, while order book for NPRT stands at ~RMB7b. A final dividend of 0.5 S cents was declared (total FY11 DPS of 1 S cent), in line with our expectations and similar to FY10’s 1 S cent dividend.
Boom days over, but growth still likely
It was reported that total railway construction spending in China hit RMB461b in 2011, or 23% short of the Ministry of Railway’s (MOR) target which was set in May 2011, before the catastrophic high-speed train crash in July. Funding for railway projects has also been a key concern for the industry, but recent fund raising activities by MOR, CSR Corp and China CNR suggest that the former could restart the tendering of high-speed rail contracts again soon. Midas would be a key beneficiary when contract wins flow down from its key customers.
Maintain HOLD
One positive from 4Q11 was that Midas’ Aluminium Alloy Division managed to secure concessionary tax rates of 15% for three years following its qualification as a high-tech enterprise in Nov 2011. We ascribe a higher target peg of 11x (previously 9x) to Midas’ FY12F EPS, in line with the average forward PER of its industry peers. This is supported by the improving market risk appetite and re-rating of China railway-related stocks due to expectations of a recovery in the sector. Our fair value estimate increases from S$0.31 to S$0.39. Notwithstanding our higher fair value, we opine that Midas’ earnings would need to pick up more quickly from its recent doldrums in order to justify its strong YTD rally. As such, we maintain HOLD.
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