Midas

Midas: Positive news flow on China’s railway industry continues, as Bloomberg reports that two units of China CNR has won bids for a total of 258 bullet trains. Accordingly, this consists of 97 bullet trains with maximum speed of 350 Kph, and 161 bullet trains with a maximum speed of 250 Kph. We note that industry players are anticipating rail equipment tenders worth ~Rmb50b to conclude before year end, with Midas expected to benefit as a proxy, via the flow through of contracts from key customers, CNR and CSR, with both being China’s two largest train manufacturers. In its recent 3Q13 results, Midas returned into the black in 3Q13, net profit of Rmb16.4m (Rmb6.1m loss in 3Q12) due to +49% y/y revenue to Rmb301m&earnings recovery of 32.5% associate, Nanjing SR Puzhen Rail Transport. The worst could be over for Midas as earnings are typically backloaded till the final quarter. Downside appears limited, trading at 1.0x FY14 P/B. Despite earnings trading at 22x FY14 P/E, we believe continuous strong order win momentum should provide impetus for a re-rating. Majority of the Street has a positive rating on Midas, with 5 Buys and 2 Sell calls and an average TP of $0.64.