S$0.40-MIDS.SI
More negative news continues to flow as The Shanghai Railway Station announced that 18 trains running on high speed rail links (between Beijing and Hangzhou) will be suspended from operation after Caixin Century Magazine reported that railway workers had found a 7.1mm long, 2.4mm wide crack on the axle of a train made by China CNR Corp.
According to standards set by the Chinese authorities, any axle that has a crack longer than 2mm must be replaced otherwise the axle could break and the train could potentially derail.
China CNR Corp, a key customer of Midas already had 54 of its trains recalled one week earlier due to potential problems associated with component issues which had caused repeated delays between the recently opened Beijing and Shanghai railway line.
Since the accident, the government has halted new train projects, tightened rail safety checks, slowed high speed trains, reduced ticket prices and train frequency and yesterday vowed to identify and severely punish those individuals and businesses responsible for the recent high speed train crash in Wenzhou.
China CNR’s share price continues to make new 52 week lows, down another 2% yesterday and has fallen 55% this year. Midas being a key supplier to China CNR has also fallen by a similar amount this year.
While Midas’ valuation currently near its 2009 lows could attempt to find some sort of bottom, we believe its share price performance going forward will still depend on how its key railway customers in China performs.
Unfortunately, due to the continued negative newsflow in the sector, its key customer’s share price continues to weaken.
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