Growing pains: Midas’ 2Q profit slides 44% on back of higher operating costs

Expansion comes with a high price tag.

Aluminum alloy manufacturer Midas Holdings saw a 44% drip in its net profit for the second quarter of the year, dragged by higher administrative and finance costs due to the opening of new facilities.
According to DBS, these are just growing pains as the group is still expanding, but profitability in the next quarters is expected to be muted.

“Between 2010 and 2015F, Midas will spend more than RMB3.7bn to expand its business and capacity,
with the current low profitability reflecting a combination of low utilisation (55%) and higher operating costs. Even as the Group seeks more orders to fulfil, profitability over the next few quarters will likely remain subdued due to higher operating and interest costs.

Factoring in lower margins and higher interest costs, our FY14 and FY15 estimates are cut by 60% and 39% respectively. We expect sequential earnings improvement but the recovery will be more gradual than previously anticipated. Current order book for the core business is c. RMB750m and for associate NPRT –RMB10bn,” noted DBS.