Midas Holdings (MIDAS SP) - DBS Research 2017-08-16: Strong 2Q Earnings Point Towards Sustained Earnings Recovery

Midas Holdings (MIDAS SP) - DBS Vickers 2017-08-16: Strong 2Q Earnings Point Towards Sustained Earnings Recovery MIDAS HLDGS LIMITED 5EN.SI

Midas Holdings (MIDAS SP) - Strong 2Q Earnings Point Towards Sustained Earnings Recovery

  • Midas Holdings' 2Q17 earnings rose 197% y-o-y to RMB56m, on revenue growth of 32% to RMB506m.
  • Diversification efforts paying off as new Stretched Plates division contributed to both top and bottom lines.
  • Midas is on track to meet our full year forecasts; earnings recovery can be sustained.
  • Maintain BUY, TP S$0.36 (0.8x P/B).

What’s New 

  • Midas reported a strong set of 2Q numbers, with net profit up 197% y-o-y to RMB55.5m on revenue growth of 32% y to RMB506m. 
  • Gross profit rose 49% y-o-y to RMB159m on gross margin improvement of 3.6ppts to 31.4%. 
  • Revenue improvement was led mainly by contribution from the recently acquired Stretched Plates business while the Aluminium Alloy business also enjoyed better gross margins y-o-y.

On track for sustained earnings recovery. 

  • At half-time, Midas’ net profit rose 185% y-o-y to RMB82m on revenue growth of 32% to RMB904m, with gross profit up 34% to RMB270m (GP Margin rose 0.6 ppt to 29.8%). 
  • Finance costs rose 52% y-o-y to 84m, offset by forex gains of RMB19.4m arising from USD denominated MTNs, while associate contribution from Nanjing Puzhen rose 45% y to RMB19m. Meanwhile, taxes were lower by 44% y-o-y to RMB14m.
  • The results are in line with our expectations, and indicate the group is on track to see a sustained rebound in earnings as efforts to diversify its business pays off. 
  • Results as at 1H17 make up 48% of our full year forecast, with second half expected to be better than the first half.
  • Midas also announced that it had won high speed railway contracts worth RMB184m for delivery in 2017, indicating that demand for its products remain firm.
  • As such, we maintain our BUY call and TP of S$0.36 (based on 0.8x P/B against 4% ROE)

Paul YONG CFA DBS Vickers | http://www.dbsvickers.com/ 2017-08-16
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.360 Same 0.360