Midas Holdings: Set to enlarge its production capacity

Purchasing 4th and 5th production lines. Midas Holdings announced that it has purchased two additional aluminium alloy (AA) extrusion lines with an annual production capacity of 20,000 tonnes. Coupled with the current two existing AA lines and taking into account the 3rd AA line that is expected to commence production in 2Q10, this move would see Midas command an annual production capacity of 50,000 tonnes by end-2010.

We view this as a positive move. With the expected strong pipeline of new projects in the PRC, Midas’ higher production capabilities would enable it to leverage on the transportation boom in China. Also, the funds required for the purchase of these two AA lines would be financed by Midas’ recent S$89.4m share placement and not through bank borrowings, thereby avoiding the need for the company to gear up.

Recommendation. The fourth and fifth lines would be commissioned in Feb-10 and Aug-10 respectively. We will be reviewing our target price and BUY recommendation pending discussions with management.

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