What’s New
Midas reported PATMI of CNY11.5m for 1Q14, a reversal of the net loss of CNY4.9m suffered a year ago. The bottom line was further boosted by the strong performance of Nanjing SR Puzhen Rail Transport (NPRT), its JV with China Southern Railway. Although 1Q14 PATMI accounted for just 9% of our full-year forecast, we consider the results to be in line as the first quarter is seasonally the weakest. Revenue soared 46.7% YoY to CNY296.9m, while gross margin contracted by a milder-than-expected 120bps YoY to 24.0%, which compares favourably with our full-year assumption of 22%.
What’s Our View
We expect the subsequent quarters to deliver stronger results on higher utilisation rates. This should be buoyed by contributions from the two high-speed rail (HSR) orders secured in April, worth a combined value of CNY464m.
China’s rail industry is expected to remain vibrant this year, with China Railway Corp (CRC) saying recently that it would raise railway fixed-asset investment to CNY800b, representing a 27% increase from its earlier target of
CNY630b. CRC could call for another round of HSR tender in 2H14, auguring well for Midas.
We leave our forecasts unchanged for now. Maintain BUY with the TP intact at SGD0.75, pegged to 1.5x FY14E P/BV.
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