Midas - Placement to drive new capacities and earnings

Midas has issued 120 mn new shares at S$0.755 each, at a 8% discount to the last closing price on 15 July 2009, and raised S$89.4 mn in net proceeds, of which more than 90% will be used to fund capacity expansion, including buying two new lines.

While we believe that management could have considered raising debt, given Midas’ low gearing, thus raising FY10E ROE by 5%, we view the placement positively, as we see increased capacities (new lines to contribute from late 2H10) boosting Midas’ bargaining strength, as it bids for further railway contracts.

We inputted new capacity/capex assumptions into our model, raising FY10/11E earnings by 6-14%. With almost Rmb1 bn in aggregate of contract wins in the last month, Midas’ order book stands at S$260 mn, based on our estimates, with more than 75%/20% of our new FY10/11E revenue forecasts secured.

After factoring in 14% dilution from new equity raised, FY09-11E EPS is lowered 4-8%, but our SOTP-based target price remains S$1.05. With contract momentum still strong and potential upside from new fabrication work, we reiterate our OUTPERFORM rating.

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