(BUY, S$0.56, TP S$0.73)
Midas’ share price is down 7% WoW, or -40% YTD, due to a high speed train crash in Wenzhou on 23 July. Following which, the PRC government has ordered a thorough investigation. We believe the accident could result in slower order wins from both domestic and overseas markets. Although Midas’ 32.5% associate NPRT has recently won RMB3.1b worth of contracts, we believe more extrusion orders are needed to sustain Midas’ growth momentum and the high valuation premium that it used to command. We now assume lower FY11 and FY12 extrusion order wins of RMB700m and RMB750m with longer delivery time, and smaller NPRT’s contribution of RMB57m. As a result, our FY11 and FY12 net profit estimates are revised down by 9% and 29% to RMB298m and RMB282m respectively. Also, we peg a lower target multiple of 15x FY11F P/E (old: 18x), or -0.5SD to its historical mean of 20x to reflect an uncertain outlook. Nonetheless, at historical trough valuation of 1.2x P/B, we deem downside risks to be limited. Maintain BUY with a lower TP of S$0.73 (old: S$0.98).
Changes to order win assumption. We now assume FY11 and FY12 extrusion order wins of RMB700m and RMB750m, with delivery over a two year period (old: RMB700m and RMB850m with delivery over a one year period). Hence, the corresponding revenue estimates are revised down to RMB1.3b and RMB1.2b (old: RMB1.4b and RMB1.8b) respectively. Extrusion order wins tallied RMB228m YTD. Close to 80% and 30% of our FY11 and FY12 estimates for extrusion are backed by announced order wins respectively.
Changes to NPRT assumption. Our assumption for NPRT’s revenue is reduced to RMB3.2b p.a. (old: RMB4.1b p.a.) over the next two years, resulting in lower associate’s contribution of RMB57m and RMB57m (old: RMB73m and RMB74m). NPRT’s order wins tallied RMB3.1b YTD. Close to 85% and 92% of our FY11 and FY12 estimates for NPRT are backed by announced order wins respectively.
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