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Maybank Kim Eng 2015-08-17: Midas Holdings - Benefit from gov’t spending in 2H. Maintain BUY.

MIDAS HLDGS LIMITED 5EN.SI

Benefit from gov’t spending in 2H 

  • Results below expectation with 1H net profit at 32% of full year forecast. 
  • EPS estimate lowered by 1-5% for the next three years as the order win in 1H15 slightly missed our expectation. 
  • Maintain BUY as Midas will benefit from government’s promotion of the rail industry. TP slightly adjusted to SGD0.50 from SGD0.49. 

Below expectation 

  • Midas 2Q15 net profit increased by 39% YoY and 6% QoQ, slightly below our expectation. Revenue grew by 11% YoY. GPM improved by 2.3ppt to 27.7% YoY, which we think might be attributable to a better product mix. As a result, gross profit increased by 21% YoY. 
  • There was less contribution from associate NPRT (-19% YoY) in this quarter due to a different project mix in the respective periods. But bottom line was boosted by a 71% drop in income tax as Jilin Midas was taxed at a concessionary rate of 15% in 2Q15 compared with 25% in 2Q14. 

Expecting better 2H; maintain BUY 

  • 1H net profit only made up 32% of our full year forecast, which is a reflection of the overall slowdown of investment in China’s rail sector in 1H15. Only CNY265b has been invested in 1H15 vs the full year target of CNY800b. 
  • We think it could be partly attributed to the merger of CNR and CSR, which delayed investment decisions in 1H. 
  • We think the government spending on the rail sector is likely to accelerate following the completion of the CNR/CSR merger. 
  • We lower our net profit forecasts by 1-5% for the next three years as the order win in 1H15 slightly missed our expectation. 
  • However we maintain our BUY rating on Midas as we believe it will directly benefit from the government’s promotion of the rail industry. Our TP is adjusted slightly to SGD0.50 from SGD0.49, pegged to 1x FY16E P/BV.

Wei Bin | http://www.maybank-ke.com.sg/ Maybank KE 2015-08-14
BUY Maintain BUY 0.50 Up 0.49


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