Midas Holdings: Charging Ahead, Buy S$0.52

Midas is expanding its production capacity and capabilities in 2009 and beyond to meet the anticipated increase in demand for its products, as China accelerates the development of its railway infrastructure. At the same time, a potential joint venture with NELA to produce super thick aluminium plates and sheets could provide further growth upside in the medium to long-term. BUY, TP raised to S$0.67 (10x FY09/10 PER).

Midas’ management met with over 30 fund managers and buy-side analysts at our conference on Wednesday, and provided insightful updates on their business.

Midas is on track to complete the addition of its third production line by the end of 2009, which will raise its production capacity by 50% to 30,000 tonnes per annum and has also bought more land to cater for its medium term expansion plans in order to meet an expected surge in demand for its aluminium alloy extrusion profiles for rail cars.

As the PRC Government steps up its railway infrastructure development plans, we believe Midas will win more contracts in 2009 to bolster its order books. Additionally, potential finalisation of the NELA JV in the second half of the year could also provide more earnings growth for the Group in the future.

Maintain BUY, target price raised to S$0.67. With 2008 behind us, we rollover our 10x earnings multiple to 2009/2010 earnings to derive a TP of S$0.67. Currently cheaper than its larger HK-listed peers, we believe Midas’ PE rating can increase if it can: 1) win more contracts, 2) deliver earnings from associate Nanjing Puzhen and/or 3) finalise the JV deal withNELA.

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