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RHB Securities 2015-08-19: Midas Holdings - New Capacity On Track To Come Online In 4Q15.

MIDAS HLDGS LIMITED 5EN.SI

New Capacity On Track To Come Online In 4Q15

  • 1H15 earnings rose 13% YoY to CNY23m and, while profits accounted for 37% of our FY15 estimate, we expect a stronger 2H15 on the production start of Midas’ new plates and sheets plant in late FY15. 
  • Although it is likely to deliver 77% EPS growth in FY16, aided by >2x of its installed production capacity, we maintain NEUTRAL and SGD0.35 TP (based on 0.65x FY15F P/BV, 17% upside) amidst expensive FY15 P/E based valuation and dismal ROE of 1.9%. 


 2H15 to be better than 1H15. 

  • The new 100,000 tonnes pa (tpa) plates and sheets capacity is on track to start trial production by 4Q15. This new business would contribute some revenue in FY15 and help offset the expenses that are being attributed to the segment, thereby improving profitability. In addition, higher deliveries of high speed train components as the year progresses should ensure higher extrusion margins in 2H15. 

 New business would have lower margins. 

  • The aluminium plates and sheets business in China is highly competitive and we believe Midas is likely to keep margins lower initially to build market presence. We estimate the processing fee per tonne of aluminium for plates and sheets business to be only 20% of its fees charged for the extrusion business in FY15-17. 

 Estimating revenue accurately is difficult. 

  • Although we estimate FY16 profit growth of 77%, we continue to highlight the incongruence between Midas’ order inflow, delivery schedule and reported revenues. In FY10- 14, its reported topline exceeded the orderbook delivery-based revenue estimate by 23-120%. At present, its confirmed orderbook only accounts for 55% of our FY15 and 11% of our FY16 revenue estimates. 

 Decline in interest cost in FY16 would be positive. 

  • 80% of Midas’ debt is exposed to floating interest rate and is denominated in CNY. The People’s Bank of China (PBOC) benchmark interest rate is expected to decline in FY16 and we estimate that a 50bps fall in Midas’ interest costs would boost FY16 PBT by 14%. 

 Maintain Neutral. 

  • At 0.53x FY15 P/BV, Midas is trading close to bottom of its P/BV valuation, which we deem fair given its dismal 1.9% FY15F ROE. The company’s Hong Kong-listed peers offer higher ROEs and are trading at lower P/Es

Shekhar Jaiswal | http://www.rhbgroub.com/ RHB Securities 2015-08-19
NEUTRAL Maintain NEUTRAL 0.35 Same 0.35


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