Midas clinches RMB 62m Shanghai Metro contract

Awaiting stronger order book momentum in 2H11. While we are encouraged by Midas' latest contract success, we opine that this contract win is relatively small-scale in nature and we are expecting order book momentum to pick up more strongly in 2H11.

This is because China's Ministry of Railways (MOR) has recently recommitted its intention to endorse the continuity of China's railway construction to boost China's social and economical development despite the corruption scandal surrounding its Minister of Railways.

As a recap, a total of RMB745.5b is formulated to be invested by MOR in 2011, with RMB600b going towards infrastructure construction.

Depressed valuations; maintain BUY. Midas' share price has fallen 32.3% YTD (versus STI's 3.5% decline), largely instigated by fears over the corruption incident as well as the slowing global macroeconomic recovery. We believe that current share price weakness represents a favourable entry point for Midas' stock.

China's 12th Five-Year plan has reaffirmed the positive medium-to-long term outlook of the industry and we expect Midas to be a key beneficiary, given its track record in the supply of aluminium alloy extrusion products to railway train manufacturers. Moreover, Midas is currently trading at 11.7x FY11F PER, a large 53.2% discount to its historical average 25x PER; it is also comparable to its peers' 11.8x PER despite commanding stronger margins.

We are keeping our estimates intact as our projections allow for such contract wins. Maintain BUY and S$1.10 fair value estimate, still based on 20x FY11F EPS. Re-rating catalysts include further contract wins of a larger magnitude.