China manufacturing improves: HSBC initial data

Buy Target SGD0.75


OSK/DMG  

Midas



Year of Recovery 


Recently we played host to Midas at our ASEAN Corporate Day held in Singapore.
The key takeaways from the meetings were: (i) outlook is healthy, especially for 
2014 and 2015, as the government continues to increase  spending on rail 
infrastructure, which would  buoy  the  demand for high-speed trains  (ii) Midas is 
taking steps to diversify beyond 2015  (iii) it does not expect its operations/activities
in 1H13 to differ much from those in 2H12, and any orders secured now are likely to 
be delivered from 2014. Midas expects to release its 4Q12 results before end-Feb. 
We reiterate our BUY recommendation and SGD0.75 TP as the potential order flow 
looks good given the government’s commitment to expand China’s rail network.
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 12
th
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.


  

OSK/DMG