Midas Holdings - OCBC Investment 2016-11-24: Making progress on diversification

Midas Holdings - OCBC Investment 2016-11-24: Making progress on diversification MIDAS HLDGS LIMITED 5EN.SI

Midas Holdings - Making progress on diversification

  • 3Q16 boosted by associate.
  • Fewer high speed train orders for 9M16.
  • Maintain HOLD.

Revenue from new business offset decline from core business 

  • Midas Holdings Limited’s (Midas) 3Q16 revenue grew 2.1% YoY to RMB420.8m, mainly due to the consolidation of results of its recently acquired Aluminium Alloy Stretched Plates (AASP) business, but offset by a 27.3% YoY decline from its core Aluminium Alloy Extruded Products (AEP) segment. 
  • AEP revenue fell mainly due to fewer high-speed train orders this year compared to last year. As a result of lesser train orders that command higher margins, 3Q16 AEP GPM fell 1.3ppt YoY to 24.8%, and led to a 1.9ppt decline in overall blended GPM to 24.0%. 
  • 3Q16 selling and distribution expenses’ 19.7% YoY growth were more than offset by a 17.5% decrease in finance costs on lower interest rates of bank borrowings. 
  • In addition, 3Q16 was boosted by a 391.9% YoY jump in the share of profits of an associate (NPRT) due to increased delivery to its customers during the quarter. Consequently, 3Q16 PATMI jumped 62.5% YoY to RMB22.6m.
  • For 9M16, PATMI beat our expectations as it grew 40.9% YoY to RMB51.2m, and formed 92.8% of our FY16 forecast.

Strong order book at associate helps 

  • Outlook of NPRT remains positive, announcing last week that it has secured four new metro train car supply contracts worth a total of ~RMB2.6b. Deliveries for the four contracts are slated between Aug 17 and Mar 19. The new contracts further add to NPRT’s already strong order book, which has accumulated over ~RMB7.2b in new projects as at 16 Nov 16. 
  • We believe Midas will certainly benefit through its 32.5% stake in NPRT. Separately, while its diversification strategy is making good progress, we still prefer to wait for better clarity over its new business segment that produces lower margin cold-rolled aluminium alloy plates and sheets which is expected to commence commercial production in 1Q17.

Update assumptions to include new business 

  • On strong 3Q16 results and consolidation of new business, we update our assumptions and increase our FY16/17F PATMI by 23.2%/18.8%.
  • Consequently, as we roll-forward to 0.5x FY17F P/B, maintain HOLD with a slightly lower FV of S$0.245 (prev: S$0.250).

Eugene Chua OCBC Investment | http://www.ocbcresearch.com/ 2016-11-24
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.245 Down 0.250