MIDAS (Lim&Tan)

- After a 3 month hiatus, Midas has finally announced a contract win from repeat customer CNR for the supply of aluminium alloy extrusion profiles for 246 train cars. This is for Shanghai Metro Line 12 Project and delivery is expected to take place from 2011 to 2013.

- While notable, the contract size of Rmb62mln is small relative to Midas’ current order backlog of Rmb1.2bln and Jan-June’11 wins totalling Rmb227.5mln is still 52% short of Jan-June’10’s Rmb472.6mln. And full year 2010 order wins of Rmb472.6mln itself represents a decline of 56% from year ago’s record Rmb1.083bln.

- Hopefully , management’s previously disclosed expectations of a pick up in orders in 2H 2011 would materialize to help arrest the declining order book trend of the last 1.5 years.

- This is especially important as the company is ramping up new production capacity significantly in anticipation of bigger orders going forward

- Since the revelations of the Railway Ministry scandals’ in Feb ’11, Midas’ share price has declined about 30%. While significant, it is nonetheless in line with that of its major customers such as CSR and CNR which are listed in Hong Kong and China respectively.

- While the consensus in general is still bullish on the railway sector in China, we note that the sharp declines in share prices of related stocks reflect the fact that uncertainties in terms of order wins going forward is real as well as whether the historically high profitability of these companies can be sustained going forward given that the Railway Ministry had plunged into its first ever loss in 1Q 2011.

- We maintain Neutral recommendation on Midas, notwithstanding its depressed share price