Midas Touch

The Chinese government has announced a RMB1 trillion ($196 billion) stimulus, targeting at infrastructure spending.

So who benefits? “We are reinstating our buy recommendation on Midas Holdings after having downgraded it to hold in mid-July this year as we believe that the China government’s announcement yesterday means that it is a question of “when” and not “if” the two-year drought in high-margined high-speed rail contracts ends,” notes Lim & Tan in a research report.

Midas’ 32.5%-owned associate company Nanjing SR Puzhen Rail Transport Co (NPRT) managed to clinch some RMB3.25 million of contracts this year, bringing its order book to RMB847 billion, to be delivered over the next three years. Since Midas is the preferred aluminium extrusion supplier to NPRT, the metro train contract wins will benefit Midas.

Separately, Midas is also winning contracts from the maiden power industry in China with RMB123 million worth of new contracts announced earlier this week, increasing their order books by 21% to RMB723 million.  According to Lim & Tan, Midas’ earnings is expected to rebound 133% in 2013 to RMB182 million, translating to a prospective PE of 12 times, down from 2012’s 27 times.

Adapted from The Edge Online