MIDAS - No Surprises

As expected 1Q ‘09 net profit grew a pedestrian 11% yoy and 1% qoq to $8.52mln reflecting the full utilization rate of their aluminium extrusion production facility since last year, good cost controls helping to offset weaker demand from the other business segments (non-aluminium extrusion business business fell from $5.9mln to only $1.7mln) as well as lower tax rate and higher scrape sales (income rose 151% to $908,000).

Looking ahead, management remains optimistic of prospects due to their exposure to the booming rail infrastructure market in China with the government recently having purchased 1,600 train cars worth RMB39.2bln and expecting more investments in the coming months to help ease traffic congestion and improve travelling time.

To cope with higher orders going forward, the company is on track to commission their 3rd production line by early 2010, thereby increasing production capacity by 50% to 30,000 tonnes per year.

In Dec ’08, the company has also purchased additional land, buildings and machineries worth RMB168mln to cater to their growth going forward. While their 32.5% owned associate company NPRT was loss making in 1Q ‘09 due to no scheduled delivery of train sets, management remains optimistic of their prospects due to their strong order backlog of 768 train cars worth RMB4.5bln expected to be delivered from 2H ‘09 onwards.

While financial position remains strong with cash of $42.7mln against debts of $33.3mln due to their capex plans of $30mln this year, their quarterly div payment has been halved to 0.25 cents since 3Q ‘08 and has been maintained at this level for the current quarter, representing a quarterly payout ratio of 24%. Annualizing this gives a yield of only 1.4%.

With the stock having recovered a strong 168% from its Oct ’08 low and having broken out of its 10 month trading range, the market momentum is going along with management’s optimistic outlook. We maintain medium-term BUY.

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