Midas secures much-awaited high speed rail project worth RMB318m

It's slated for delivery in 2014.

According to CIMB, after a long wait, Midas announced that its subsidiary, Jilin Midas, has secured its second high speed rail (HSR) contract since China Railway Corporation (CRC) resumed HSR procurement in Sep 2013. The contract, worth Rmb318m, was awarded by CNR Tangshan and is slated for delivery in 2014.

Here's more:

Renewed confidence. Midas’s share price has fallen 10.8% YTD on fears that its second HSR contract win may not come through in 1Q14, as expected.

However, we think this new contract win is likely to renew investors’ confidence in the stock, given that Midas has delivered on its promise of winning its share of HSR orders from CNR Tangshan. 

More HSR contract wins likely to come. Besides CNR Tangshan’s order win of 70 train sets in the last round of HSR procurement, CNR Changchun was also awarded orders for 27 train sets. Given Midas’s track record of winning 90% of orders from CNR, we think that it is likely to secure a portion of orders for the 27 train sets. 

We estimate a potential order size of Rmb80m-120m, based on an average price per train set of Rmb3.0m-4.5m. 

Boost to margins. With more higher-margin HSR contracts, we expect margin expansion in 2014. The average price per train set for this new contract is also higher than the prior contract, implying more fabrication work and thus, a higher margin. 

We have factored in a gross margin of 28.8% for FY14 (FY13: 24.5%). Midas recorded 28.8% gross margin in 4Q13 when it recognised the bulk of its first Rmb167.5m HSR contract.