SINGAPORE (March 2): DBS Vickers Securities is maintaining its “buy” rating on Midas Holdings with a lower target price of 36 cents from 38 cents previously, thanks to better-than-expected FY16 earnings and a predicted revival of its core business.
To recap, the aluminium supplier last Friday posted a strong set of FY16 financial results, where net profit had rebounded 76% y-o-y to RMB 101 million ($20 million), indicating a strong recovery momentum.
(See also: Midas posts 76% rise in FY16 earnings to $20.5 mil, thanks to contributions from new division)
“We are positive on the earnings outlook for Midas and see the group continuing to improve its profitability in 2017 and 2018,” says DBS analyst Paul Yong in a Wednesday report.
The research house also expects the company’s core aluminium extruded products division to ride on market growth in FY17 as demand for metro and high-speed railway cars in China remains robust, following a temporary slowdown in project deliveries in 2H16.
Looking at the group’s future earnings potential, Yong believes its diversification into new business segments will drive long-term growth and earnings prospects.
For example, Midas is expanding organically into producing aluminium alloy plates & sheets this year. Via the acquisition of manufacturer Dalian Huicheng, the group is also going into the aluminium alloy stretched plates segment.
Additionally, the analyst expects Midas’ stretched plates division to contribute significantly to FY17 results, while its commencement of operations in the aluminium alloy plates & sheets division in 2Q17 is likely to contribute to earnings by 2018.
“We project Midas’s net earnings to rebound substantially from RMB 101 million in 2016 to RMB170 million in 2017F and further improve to RMB 194 million by 2018F,” concludes Yong.
A smooth ramp-up of the group’s new plates and sheets division, positive earnings contribution from Dalian Huicheng, as well as more railway contracts would further drive Midas’ share price, he adds.
As at 12.08pm, shares of Midas are trading flat at 24.5 cents.
