Midas

Midas: (S$0.315) Improved 3Q15 results a herald to the future?
Midas’ 3Q15 net profit soared more than 9x y/y from a low base to Rmb13.9m meeting the street’s expectations on a quarterly basis. For 9M15, the group chalked up a net profit of Rmb36.4m, 70.8% higher than the same period in the previous year.

Revenue jumped 27.2% to Rmb412.2m, driven by higher contributions from its aluminium alloy extruded products, with 84.6% of demand derived from the transport industry. But gross margin slipped 1.1ppt to 25.9% due a different product mix.

Other operating income, comprising interest income and the disposal of scrap materials, jumped 78.6% to Rmb4.7m and helped shave the 17.6% rise in admin expenses to Rmb42.9m.

Bottom line was boosted by its share of profit from 32.5% associate, Nanjing SR Puzhen Rail Transport, which soared 650% to Rmb2.5m from 3Q14’s Rmb0.3m.

Prospects in the Chinese rail industry have picked up after an acceleration of rail investment by the central government in 2H15. According to the National Development and Reform Commission, 2015 could see rail spending exceeding its target of Rmb800b on a traditionally peak season of construction in 4Q15.

In Sep and Oct alone, China approved the construction of 12 new rail projects worth a total of Rmb575b. Coupled with the pursuit of international rail projects, Midas is counting on its links in China to benefit from the surge in government investment.

With this in mind, the latest batch of results could be a herald of a potential turnaroud in its financial performance. The counter sits on Market Insight’s Growth portfolio.

Midas is currently trading at 32.1x forward P/E and 0.55x P/B.