Midas: Expanding capacity if orders ramp up

Potential for new contracts. Midas CEO Patrick Chew revealed in an interview with Reuters that the company was targeting to win S$200m worth of contracts for high-speed and metro trains in China with the roll-out of increased spending on infrastructure projects. If it succeeds in bagging this deal, its orders will be trebled to around S$300m, the highest ever since IPO.

Fourth production line if deals flow. If the new orders do get clinched soon, and extra orders continue to pile up for block-booking, management reveals that it may have to build a fourth production line, a move which would bring its total extrusion capacity to 40,000 tonnes per annum. We estimate that a fourth line should cost around the same as the third (S$32-S$35m). The third line will be operational in 1Q10, and boost the Group’s capacity by 50%.

Maintaining estimates. We are maintaining our earnings estimates for now, and will review if and when new deals flow through. We continue to favour Midas given that it is one of the chief beneficiary of China’s stimulus package. Maintain BUY with target price of S$0.855, based on our DCF.

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