Kevin Scully: "MIDAS has hit the big one"

Kevin Scully, executive chairman of NRA Capital. Photo: CompanyThis article was first published on www.nracapital.com and is reproduced with permission.


Midas hit the big one - its associate NPRT has won three Metro rail contracts worth RMB3.5bn.......this could be the catalyst to break S$0.50 !? 

Midas announced last night that its 32.5% associate company Nanjing SR Puzhen Rail Transport Co., Ltd has won three contracts totalling RMB3.5bn.  This award brings its total rail contracts in 2014 to more than RMB 4.5bn.

The three contracts are as follows:

a) RMB1.5 billion was awarded by Suzhou Rail Transit Co., Ltd for completion in 2015 to 2017

b) RMB0.9 billion was awarded by Hefei Urban Rail Transit Co., Ltd.for completion in 2015 to 2016

c) RMB1.1 billion was awarded by Hangzhou Metro Group Co., Ltd. for completion in 2014 to 2017. 

Commentary

Besides increasing Midas' order book, these three contracts are important as they are high speed contracts which have historically enjoyed better margins.  In my earlier commentary about what would be needed for Midas to break the S$0.50 level, I referred to its margin as revenues in 2013 already exceeded its annual revenue before the Shanghai rail accident.

Management explained that the metro contracts have lower margins than high speed contracts, its receivables aging had increased and start up costs associated with its business diversification had contributed to the lower margins.

Midas is already improving its receivable aging as seen in its 2013 results.  These Metro contracts should enjoy better margins.  All that is left is for its new businesses to start delivering profits.

I am therefore quietly confident that a sustained rise above the S$0.50 level is now possible.  

The recent weakness in the share price seems to have come from some asset allocation selling by some global funds.  A legacy from its hey day - Midas has a list of blue chip global mutual funds as shareholders - they have been patiently waiting although some divestments from these funds were seen in 2013 and 2014.

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