Midas Holdings - Core business growth to resume in FY10

Midas will be reporting its 1Q09 results on 13 May. We believe the upcoming 1Q results will be a reflection of our full year expectations, where bottomline growth will be derived mainly from subsidiary NPRT, a manufacturer of metro trains. Consequently, we expect 1Q results to be stronger on a yoy basis but flat on a qoq basis.

Midas’s expansion plan which includes its 3rd extrusion production line and downstream fabrication activities is expected to be operational by early FY10 and 2H09 respectively. With utilization already at its optimal of approximately 80% since 2H07, growth for its core aluminum alloy division will be subdued until new capacity kicks in.

While NPRT only contributed $1.9m under share of associates, we expect it to make a more meaningful contribution in FY09, on the back of its S$1b orderbook. However, we would only expect to see the strength of this increased contribution in 2H09, where the delivery schedule is skewed towards.

China Zhongwang Holdings, a private China-based aluminium extrusion producer is due to debut on the Hong Kong Exchange on the 8 May, in the largest IPO in the world year-to-date, raising S$1.4b. While much larger, the two companies share several similarities. Being a peer, a stellar performance could bring positive spill-over interest into Midas.

We maintain our BUY call on Midas with a SOTP target price of $0.68. Currently trading at 11.9X FY09E, which is close to Zhongwang’s IPO valuation of 11X FY09E, we believe Midas is a more direct proxy to the PRC railway sector and will continue to benefit from the government’s infrastructure-focused fiscal stimulus spending.

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