Midas poised to clinch RMB2.5b-3.2b high-speed rail orders by end-2015

We raise our FY14-15 EPS to 17-19%  above consensus the market is likely to follow suit. We believe further HSR contract wins could catalyse the stock.

China?s railway spending 

To improve connectivity between provinces and cities across China, the government plans to add 11,200 high-speed train cars (10,400 currently) and extend the high-speed railway to 18,000km by 2015.

To achieve this, it has allocated a Rmb3.3tr budget for railway investments over the current five-year
plan period that ends in 2015.

In 2011-12, Rmb1.21tr was spent on building railway infrastructure, which leaves a budget of Rmb2.09tr for  2013-15.

As the procurement of railway equipment (including train cars) tends to be back-end loaded, there could be an increase in the remaining budget to Rmb2.16tr that the market has yet to factor in. Based on Midas?s 60% market share, we estimate that it could win Rmb2.5bn-3.2bn of HSR orders by end-2015.

Why Midas 

Midas has built up several  competitive advantages over the years:  1) close relationships with its key  customers, CNR Changchun, CNR  Tangshan and CSR Bombardier  Sifang, 2) having the dies to produce  a variety of extrusion profiles, and 3)  strong track record of manufacturing  quality products.

As a result, we  believe Midas can maintain its  position as a preferred supplier to its  key customers, which will help it to  retain its leading market share of 60%  and win the bulk of the HSR contracts.