The net profit in 1H09 was achieved without any contribution from its 31.5%-owned metro manufacturing associate Nanjing Puzhen Rail Transport (NPRT). This is due to the delivery schedule of its S$1b orderbook where FY09 delivery will come in the 2nd half of the year. We estimate Midas’s profit share to be approximately $6.4m in FY09.
Downstream fabrication will begin operations as scheduled in the 2H09. However we do not expect this to be meaningful to overall profit for FY09. Management has already scheduled an orderbook of about $20m for this new business and we expect contracts momentum to increase when Midas starts to show results for its clients.
The share placement proceeds of $90.6m in July will be mainly used to fund these. With an estimated installation time of 6 months each, we expect the 4th and 5th line to start operations in 4Q10 and 1Q11 respectively. With its capacity constraint alleviated, we expect Midas to compete strongly for the next round of orders which could come in 4Q09.
We have upgraded our FY09 earnings estimate by 6%. We are unconcerned about the decrease in revenue as that only reflects the lower aluminum prices and is inconsequential to Midas’s profitability. Our target price of $0.985 which is pegged to 18X FY10 earnings remains unchanged.
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