Midas Holdings to benefit from China's booming railway reforms

Seven more contracts from NPRT up for grabs.

According to OCBC Investment Reearch, news of China’s Ministry of Railways’ (MOR) dissolution and subsequent restructuring can be viewed as a mid-to-long term positive for the railway sector, as it is targeted at rooting out corruption, improving safety aspects of railway projects and cutting down on bureaucracy which may result in improved efficiencies.

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This would likely benefit industry suppliers such as Midas Holdings (Midas). However this reform may result in some near-term uncertainties over the timeline of new high-speed railway (HSR) contract tenders.

China’s Minister of Railways Mr. Sheng Guangzu also recently said that there were sufficient high-speed train cars currently. Nevertheless, we believe that as rail passenger traffic continues to grow and more railway tracks are added in 2013 and beyond, there is a good likelihood that more high-speed train cars would be required.

The Chinese government also reaffirmed its railway investment targets for this year, while its 12th Five-Year Plan for the sector remains unchanged. 

Midas recently secured a total of CNY109.6m worth of contracts to supply aluminium alloy extrusion and fabricated parts to five metro projects in China. The value of each contract ranges from CNY10.6-31.7m, with four of these awarded by Midas’ 32.5%-owned JV company Nanjing SR Puzhen Rail Transport (NPRT).

As NPRT previously had seven projects which it had yet to award contracts to aluminium alloy extrusion suppliers, we see potential for more order wins by Midas from NPRT in the near future for the remaining three projects. We estimate that total contract value for these projects could amount to ~CNY75m.