MIDAS Holdings
Feb 28 close: $0.74
DBS VICKERS, Feb 28

MIDAS reported full-year results that were in line with our expectations. Net earnings rose 29 per cent y-o-y to $48.5 million on 38 per cent growth in revenue to $207 million.

Gross margin was lower than we expected on higher raw material costs but this was mostly passed through on higher ASPs, which meant revenue came in 11 per cent above our projection of $186 million. Gross profit of $69.5 million was 5 per cent higher than our forecast while associate contribution of $9.3 million was just a shade below our $10 million projection.

Having spent about $100 million on capacity expansion in 2010, the group's balance sheet remains strong having raised over $210 million from its dual listing in Hong Kong. Net cash stands at $112 million.

Recommendation: Midas has won about 170 million yuan (S$32.9 million) worth of contracts YTD, and we expect more contracts over the year to bolster its current order book of 1.5 billion yuan.

The recent suspension of China's Minister of Railway may slow contract awards in the industry in the short term but should have no impact on China's long-term railway development plans. Maintain Buy and $1.20 TP based on 20x FY11 earnings. Midas is currently trading at 12x FY11 PER.
BUY