MIDAS (Lim&Tan)

S$0.385-MIDS

􀁺 We highlight key points by Patrick Chew CEO of Midas from his interview with the Edge:

a. while the high speed rail orders have come to a standstill in the near term due to investigations by the government, they will continue to receive orders for metro trains as well as export orders;

b. he believes that China’s high speed rail will be back to normal once the investigations are completed;

c. despite the on-going investigations, the company has not received any information regarding contract cancellations as rumored in the market;

d. despite the near term uncertainties, management continues to believe in the long term benefits of the railway industry in China and will go ahead with their original plans to construct the new plant in Henan, targeting to increase existing production capacity by another 40% to 70,000 tpa.

COMMENTS

1. While we agree with management’s view that the longer term prospects of the railway industry will remain intact given that its a key backbone of China’s economic development, the near term uncertainties regarding the on-going investigation will continue to weigh on sentiments. While metro train and export orders may help to mitigate the weakness from the high speed orders, we believe that for the stock to sustain its upward momentum again, all sectors would have to show strength again, much like what happened in 2009-2010. But with the stock retesting its March 2009 lows in terms of share price and valuations, we believe investors can start to monitor the stock again for investing opportunities again. But we are maintain Neutral for now pending the end of the investigations and for signs of a pick up in order momentum again.