Today DBS Group Research

BUY S$0.67

 

Price Target : S$ 0.82 (Prev S$ 0.60)

At a Glance      

 

• Net earnings up 11% yoy to S$8.5m, in line with

 

expectations

 

• Forecasts maintained, expect rail-related contract wins in

 

coming months

 

• S 0.25cts dividend declared (1Q08: S 0.5cts)

 

• Maintain BUY, TP raised to S$0.82, based on 15x

 

FY09/FY10 earnings.

 

Comment on Results

 

Midas reported 1Q09 earnings that were in line with expectations, as

 

earnings rose by 11% yoy to S$8.5m. Whilst revenue declined by 13%

 

yoy, due mainly to lower ASPs for their aluminium extrusion products as

 

a result of lower raw material prices and lower contribution from the PE

 

pipe business. Gross profit still rose by 2% yoy to S$13.2m as G.P.

 

margin improved to 42% from 36%. Railway related projects

 

accounted for nearly 70% of total revenue. Otherwise, despite

 

associate NPRT reporting a small loss, lower operating costs and lower

 

taxes helped lift net earnings to 11% growth.

 

Operating cashflow was a healthy S$15m and the Group invested a

 

further S$16m to expand its capacity and capabilities. Company

 

remains in a net cash position.

 

Recommendation

 

Looking ahead, we expect Midas to win more rail-related projects in the

 

coming months as China executes on its infrastructure projects.

 

Potential projects up for grabs include the Beijing-Shanghai high-speed

 

railway line and metro projects in Shanghai, Hangzhou, Guangzhou

 

and Xi ‘an. We also expect a stronger contribution from NPRT, which

 

had no deliveries scheduled in 1Q, but has a backlog of 768 train cars

 

to be delivered from 2H09 onwards.

 

Maintain BUY, target price raised to S$0.82, as we raise our valuation

 

multiple to 15x FY09/FY10 earnings for Midas, still at a 25% discount to

 

HK-listed CSR Zhuzhou Times Electric, which has been re-rated strongly in

 

recent weeks to 20x FY09 PER.

 

ANALYST: Paul Yong CFA +86 21 6888 3372 paulyong@dbsvickers.com