Published February 10, 2009

Midas gearing up for Chinese demand

By LYNETTE KHOO

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MIDAS Holdings, a likely beneficiary of China's stimulus package, is eyeing bigger-sized projects from this year on.

To meet an anticipated rise in demand for aluminium alloys, it is ramping up its capacity by 50 per cent to 30,000 tonnes with a third manufacturing line and moving into downstream processes. It is using internal cash to fund current expansion.

While many companies are facing declining demand, Midas appears to be having a 'problem' of a different kind: that of making sure there is sufficient capacity to meet the demand.

Midas CEO Patrick Chew said the group is in the right sector, expecting to benefit from the high-speed train projects under China's 4 trillion yuan (S$877 billion) stimulus package and new metro projects in China. 'The order size from the stimulus package for railways is massive, so I don't think it is a question of orders but a question of how to cope with the influx of orders that are coming in,' he said. 'It is more a question of rolling out the product to cater to all this upsurge in demand.'

Midas has been undertaking contracts for its aluminium alloy extrusion products at a wide value range - from 20 million yuan to over 100 million yuan. Mr Chew told BT yesterday that he hopes to secure bigger-value contracts from the high-speed train projects under China's stimulus package.

Giving a ballpark estimate on the potential orders that could flow from the stimulus package, Mr Chew estimates that, of the 2 trillion yuan that the Chinese government will spend on railway infrastructure, some 20-25 per cent will go into rolling stock. This means about 500 billion yuan in total potential order size for rolling stock.

Midas is also targeting new metro projects in Hangzhou, Xian and Chengdu through its 32.5 per cent-owned joint-venture firm Nanjing SR Puzhen Railway Transport Co, Mr Chew said. The JV is one of the four rolling-stock companies licensed to make and sell metro trains on a nationwide basis in China.

'These are all prospective orders that are coming in when the projects are launched,' he said with a chuckle.

But he added that the group is adopting a conservative attitude in its expansion, preferring to 'take one step at a time' to consider the order flow velocity first before rolling out new expansion plans, given the long time lapse to book in the gains.

Mr Chew noted that it typically takes about 18-24 months for a rolling-stock company to deliver metro cars after receiving the contract and some 6-9 months for component suppliers such as Midas to deliver the components to the rolling- stock company.

Midas recognises the value of the contracts only upon delivery. But Mr Chew said he is not worried about any problems in collecting trade receivables.

'We have been getting our payment on time, so I don't see there will be a change in payment mode,' he said.

Midas's order book of $120 million for aluminium alloy products will be recognised over 2-3 years and Nanjing SR Puzhen Railway Transport Co's orders for metro train cars worth 4.5 billion yuan will be booked in 2009 to 2011.