By Lee Wen Ching
Wed, 23 Jun 2010, 08:54:34 SGT

Midas Holdings (Midas) has clinched two contracts over the last month, reaffirming its robust earnings outlook amid global macroeconomic uncertainty. The group’s most recent contract win pertains to a RMB59m contract to supply aluminium alloy extrusion profiles and fabricated parts for an inter-city high-speed train project in China, and this follows shortly after its 32.5%-owned JV Nanjing SR Puzhen Rail Transport Co (NPRT) secured a RMB1.14b contract to supply train sets for a Shanghai Metro project. The group remains poised for further contract wins, which we believe will serve as catalysts for the stock. On a separate note, we do not expect the RMB’s appreciation to have a significant impact on Midas as the group is naturally hedged with the bulk of its revenue and costs denominated in RMB. It may, however, get a boost from translation gains should the RMB appreciate against the SGD, its reporting currency. We continue to like Midas for its robust earnings outlook and maintain our BUY rating on the stock. Our fair value estimate remains at S$1.58.

Bagging more contracts. Midas Holdings (Midas) recently announced that it has clinched a RMB59m contract from CNR Changchun Railway Vehicles Co. to supply alumimium alloy extrusion profiles and fabricated parts for an inter-city high-speed train project in China. Delivery is slated for 2010. The good news comes hot on the heels of another contract win by the group’s 32.5%-owned joint venture Nanjing SR Puzhen Rail Transport Co (NPRT)., which announced on 31 May 2010 that it clinched a RMB1.14b contract to supply 24 train sets for a Shanghai Metro project. NPRT has a 70% share of this contract, which we estimate will boost Midas’ revenue by RMB259m over 2012 to 2013. We are keeping our earnings estimates intact as our projections allow for such contract wins. With these developments, we estimate that Midas’ order book now stands at RMB1.4b with visibility extending till 2013.

Yuan revaluation unlikely to impact earnings. China’s central bank over the weekend pledged to reform its renminbi (RMB) exchange rate regime in a bid to enhance its exchange rate flexibility. We do not expect the reform to have a significant impact on Midas as the group’s forex exposure is naturally hedged with the bulk of its revenue and costs denominated in RMB. The group may, however, get a boost from translation gains should the RMB appreciate against the SGD, which is the group’s reporting currency.

Secondary listing can wait. Meantime, the group’s planned secondary listing is likely to be postponed in light of current volatile market conditions. Midas has been planning a secondary listing of its shares on the Stock Exchange of Hong Kong since late last year. In conjunction with the listing, the group was to issue 300-340m new shares at an issue price of no more than 10% discount to its SGX market price. However, recent broad market weakness has dragged the stock down by 14% over the last two months, making it more sensible for the group to hold out until market sentiment improves since it has no urgent fund-raising needs. Midas has a strong balance sheet with a marginal S$9.4m net debt position as of 1Q10.

Maintain BUY. We continue to like Midas for its robust earnings outlook amid global macroeconomic uncertainty. The group remains poised for more contract wins, which we believe will serve as near term catalysts for the stock. We maintain our BUY rating on Midas, and our fair value estimate remains at S$1.58.