MIDAS HLDGS LIMITED
5EN.SI
Midas Holdings - Scaling up to improve profitability
Maintain BUY; more substantial recovery from 2016 onwards.
- We see value in Midas’ share at 0.5x FY16 P/BV currently as we project that the Group’s earnings will to start to recover more substantially from 2016 onwards, as contribution from its new divisions kick in.
- We see the stock re-rating towards our TP of S$0.41, based on 0.8x FY16 P/BV as ROE improves.
Steady outlook for core businesses.
- With order books of nearly RMB1bn for its core extrusion business and c.RMB10bn for its associate NPRT, we expect Midas’ existing business to show steady improvement in 2016F.
- Midas is also in a good position to win more orders to raise its utilisation and earnings on the back of firm demand for high-speed and metro trains in China and abroad.
Acquisitions and a new segment to drive long-term growth.
- Looking ahead, we expect the Group’s forays into new business segments, i.e. Aluminium Alloy Plates & Sheets, Aluminium Stretched Plates and Aluminium Hot Roll Plates & Coils to help drive the Group’s growth.
- We project Midas’ net earnings to rebound substantially from RMB57m in 2015 to RMB175m in 2016F and further improve to RMB224m by 2017F. This represents an ROE improvement from less than 2% in 2015F to 5% in 2016F and 5.2% in 2017F.
Valuation:
- Valuation is undemanding at just 0.5x P/BV, which is at its 5- year low.
- Our target price of S$0.41 for Midas Holdings is based on 0.8x P/BV, which we use as our valuation multiple given that 5% ROAE projected for 2016F is still below the Group’s cost of capital.
Key Risks to Our View:
- Execution risk for new business divisions. With three new business divisions slated to contribute to the Group’s P&L, Midas needs to show its ability to execute its expansion strategy – that these new divisions can quickly contribute to the Group’s short- and long-term growth.
Paul YONG CFA
DBS Vickers
|
http://www.dbsvickers.com/
2016-03-01
DBS Vickers
SGX Stock
Analyst Report
0.41
Down
0.49
