INFRASTRUCTURE DEMAND in China is set to be spearheaded by the railway sector.
China’s Ministry of Railways plans to invest Rmb 600 billion in railways in 2009, some 80% above the Rmb 330 billion spent in 2008.
Some brokers recently said the sector’s growth looks “explosive”.
"China’s railway transport will be much more convenient by 2012 when bottlenecks in passenger and cargo transportation are removed," said Minister of Railways Liu Zhijun at a railway conference on 31 Dec 2008.
Little wonder then that SGX-listed aluminum alloy extrusion profiles maker Midas is paying S$35.6 million to acquire a factory to expand its capacity, in anticipation of what it describes as “increased demand in aluminum alloy profiles for railways”.
Leader in aluminum alloy extrusion products
Huge investments are also planned for China’s urban rapid transit network, with another Rmb 600 billion earmarked for completing 2,400-km of city rail in 15 cities from now till 2015.
Urbanization is currently only 43%, compared to a 60% target by urban planners.
The transport industry contributed 58% to Midas’ top line during the first 9 months of 2008.
Its aluminum alloy extrusion products are used to manufacture body frames of high-speed trains and MRT/LRT trains.
These contributed 90% to Midas’ revenues during 3Q08, and Midas has significant market share in the transportation and power industries.
Midas is China's only certified supplier of aluminum alloy extrusion products for the world’s three renowned train manufacturers - ALSTOM, Siemens and CBRC - and it has been supplying to high profile MRT projects in China since 2003.
Besides urban rapid transit systems, Midas' aluminum alloy extrusion products are used in power stations for power transmission, electrical energy distribution, transmission cables as well as production of mechanical parts for industrial equipment.
Other industries which contribute to Midas' top line include power, gas and water treatment.
Metro - Leading train car maker
Midas also owns 32.5% in Nanjing SR Puzhen Rail Transport, a Sino-foreign joint venture that makes trains for China's urban rapid transit system, which includes subways as well as light railway lines.
Nanjing SR Puzhen Rail Transport is one of only four rolling stock companies in the PRC licensed to manufacture and sell metro trains on a nationwide basis.
It also makes bogies, which are equipment that support the carriage above the train rail.
Projects that Nanjing SR Puzhen Rail Transport Co Ltd will start delivering this year include a total order of 768 metro train cars for four metro train projects in the PRC, namely the Nanjing Metro Line 2 Project, Shanghai Metro Line 10 Project, Nanjing Metro Line 1 Extension Project and Shanghai Metro Line 2 Eastern Extension Project.
Even though 3Q08 earnings were down 15.8% yoy, 4 brokers have issued buy or outperform calls since its 3Q08 results were announced on 7 Nov 2008.
Phillip Securities initiated coverage on the stock last week, and made a buy call with fair value at 63 cents. That's a 30% upside to its last close price of 48.5 cents.
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