Midas Holdings’ Q3 profit skyrockets 845.3% to RMB13.9m

Thanks to revenue growth offsetting raised expenses.

Midas Holdings’ net profit rocketed 845.3% YoY to RMB13.9m in Q3, according to a report by OCBC. The company’s revenue surge of 27.2% YoY to RMB412.2m offset raised expenses and start-up costs.

Administrative expenses surged 17.6% to RMB42.9 on higher staff costs, in line with the revenue growth recorded during the quarter. Part of this growth in administrative expenses was also attributable to the start-up costs of its new light alloy business, which has to contribute in revenue as it is still in its trial production phase. Meanwhile, selling and distribution expenses dipped 1.4% YoY to 25.9%.

OCBC analysts venture that Midas’ growth over the near-term is likely to be muted due to three main reasons.

Firstly, the company’s new Luoyang plant is currently still taking in orders for lower margin components production because it takes time to build a portfolio that will allow customers to feel comfortable with contracting the Luoyang plant for higher margin products.

Secondly, even though commercial production for Midas’ new light alloy plant is expected to start in the first half of 2016, ramping up earnings for a low margin business such as this requires a considerable amount of time.

Lastly, orders for equipment and trains manufacturers will only pour in around the of FY16 or even 17 despite the expectation that investments in the China railway industry will further increase.