HANKORE -- Buy, Target 17 cts; MIDAS -- Buy, Target 64 cents.

Excerpts from analysts' reports

Maybank Kim Eng reiterates buy call on HanKore

Analyst: Wei Bin

David Chen, executive chairman of HanKore.
NextInsight file photoHanKore’s shares fell 18.5% last Friday over fears of CEI deal fallout as corruption investigations of SOEs extend to CEI.  

 Separately, HanKore issued a profit warning. We are not worried as it is purely accounting adjustments with zero impact on cash flows.  

 In our view, current share price assumes no CEI deal and presents a good entry point. Reiterate BUY with unchanged TP of SGD0.17, based on 30x FY6/15E P/E.  

Accounting related; no impact on cash flows.  We would advise investors to not be unduly worried about the profit warning as it is purely accounting related with no impact on HanKore’s cash flows.

The profit warning relates to: (1) fair value loss on contingent liability from the acquisition of Jiangsu Tongyong Environment Engineering, and (2) fair value adjustments on outstanding warrants.

The latter is a yearly exercise whose impact was not apparent to us before as the market price was just slightly above the exercise price of SGD0.04 for the warrants.

We estimate that SGD23.2m (CNY116m) needs to be charged in 3QFY6/14 P&L, putting the company in the red for the quarter.  We would recommend continued focus on HanKore’s strong core operations.

The market appears to have written off the CEI deal. In our view, current share price weakness presents a good buying opportunity.

Reiterate BUY with the TP unchanged at SGD0.17.

OSK-DMG analyst Sarah Wong says: " We maintain that even if the China Everbright deal does not go through, HanKore deserves at least 15x FY15F P/E in a normalized cycle without state backing. This works out to TP SGD0.097.  "HanKore's earnings growth of c.25% CAGR is driven by a systematic expansion of its organic plants, which will also require heavy EPC work thereby boosting its internal EPC earnings."

Recent story: "China's water sector poised for golden era, buy HANKORE, SIIC"

DBS Vickers sees Midas' share price re-rating in near term

Analyst: Paul Yong, CFA

Revenue grew 47% yoy to RMB297m, which was led by a 51% growth in the aluminum alloy segment to RMB296m, which was in turn boosted by higher railway project revenue. Gross profit grew at a slightly lower clip of 39.5% yoy to RMB71m as GP margin fell marginally to 24% from 25.2% a year earlier.
Patrick Chew, CEO of Midas. Photo: Company
Earnings turnaround led by strong contribution from associate Nanjing Puzhen, where contribution turned from a loss of RMB4m a year ago to a positive gain of RMB11.5m for the quarter.

Our View

Stronger quarters are projected ahead, as the first quarter is seasonally the weakest and more importantly, Midas should be delivering more of its higher margin high speed railway contracts, of which over RMB500m have been won in the last few months. Thus we expect both higher revenue and margins ahead, as compared to the first quarter.

Expect more contract wins to further boost order books. At the same time, as China and its cities continue to construct more metro lines and inter-city high-speed railway lines, we expect Midas to win additional metro as well as high speed contracts to further boost its order books, which we estimate stand at c. RMB900m to RMB1bn currently. We believe the Group should also be winning further overseas contracts as well in the coming months.

Recommendation

Maintain BUY, TP S$0.64. The stock is trading below 1x FY14 P/B, and we see its share price rerating as it executes on its earnings recovery. Our TP is based on 1.2x FY14 P/B.