Midas

Midas: CEO Patrick Chew Hwa Kwang interviews with The Business Times. Sees Midas poised for a strong business recovery, now that Beijing has completed its year-long investigation of the July ‘11 catastrophic high-speed train crash in China. Notes, besides Beijing capital approving spending (that has been put on hold for a yr) on its national high-speed rail grid, Chinese cities are also embarking on aggressive projects to build metro systems. Says, the Chinese Ministry of Railway and state-owned rail enterprises CSR Corp (China Southern Rail) and China CNR (Northern Rail) have started pushing ahead with the Rmb 2.5 tr railway construction and upgrading programme under China's 2010-15 Five Year Plan targeting 120,000 km of intercity rail track construction. Notes the banks are committing to finance ~Rmb 2tr, while the govt is underwriting bonds and offering a 50% tax break on yield to bondholders; almost Rmb 90b has already been raised. Says, about 90% of the stalled projects have restarted. Meanwhile, 13 cities with metro systems are expanding them, while 28 more cities around the country got approval to build new metro systems. And with the recent reduction of application threshold to allow cities of 1.5m people to apply, another 20 cities have put in application to build metro lines. Some 200 cities across China qualify. Chew notes, there are 8,000 intercity coaches and 10,000 metro coaches in China now. Under the 5-year plan, there will be 45,000 coaches by 2015. Believes Midas is a key beneficiary, controlling 66% of the Chinese market for the supply components which make up the shell of aluminium coaches - namely roofs, sidewalls, and floors. Notes there are only three or four players licensed to make these coaches in China, and Midas is the biggest. Anticipating an explosion of pent-up demand, Midas is adding a plant at Henan to its existing 5 lines in Jilin. According to Chew, even at 80% capacity, Midas's existing production lines will be able to produce 48,000 mt of aluminium for coach construction. This translates to 6,000 coaches a year, versus the demand of 9,000 per year, for both high-speed and metros. Over the longer term, Midas sees opportunities to supply the auto, aviation and shipping sectors, where demand for aluminium components and parts is driven by environmental legislation. The co is also positioning itself to expand beyond China by being the preferred supplier to global train-makers Bombardier, Siemens and Alstom. Midas trades at 14.6x P/E. Recent Street ratings are at Buy or Hold, with TP btwn $0.29 – 0.41.