Midas: raise target to $1.10

Accelerating expansion to meet demand. Midas plans to expand its aluminium extrusion production capacity to 50,000 tonnes per annum, along with three fabrication lines by end 2010 to grow its business. We project Midas’ revenue to double by 2011 to S$283m, with earnings increasing from less than S$33m in FY08 to S$75m by 2011. Revenue and earnings in 2012 is projected to reach S$350m and S$92.6m respectively.

Strong order book and bidding for more contracts. With an order book of RMB1.5bn to fulfill from 2Q09 onwards, Midas’ aluminium extrusion lines (including the 3rd line) are already fully booked until the end of 2010. The Group is also bidding for more contracts as China continues to spend on developing its railway system. At the same time, Midas’ associate Nanjing Puzhen also has a strong order book of RMB4.5bn and is gunning for more projects in various cities.

Target price raised to S$1.10, maintain BUY. We raise our target price for Midas to S$1.10, based on 20x FY10 earnings, at a 20% discount to its HK-listed train and parts manufacturering peers. 20x PE is also undemanding against Midas’ 25% EPS CAGR over FY08-FY12, which translates to 0.8x PEG.

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