eugene_chua1.2015Excerpts from analyst's report

OCBC Investment Research analyst
: Eugene Chua (left)


Key customers merged to boost global competitiveness

Midas Holdings Ltd (Midas) generates a large portion of its revenue from China’s railway sector, where its major customers had been China’s two largest licensed train manufacturers – CSR Corp (CSR) and CNR Corp (CNR).

On 30 Dec 14, the merger of CSR and CNR to form a single entity – CRRC -- was announced, through a share-swap where each CNR share will be exchanged for 1.1 CSR share.

hi_speed_hangzhou_shanghaiHigh-speed train plying between Hangzhou and Shanghai. NextInsight file photo. The key rationale is to increase their competitiveness in the global railway market while eliminating bidding competition between them.

At first glance, the merger looks positive for Midas, but we think it is still too early to determine how CRRC may allocate contracts to their existing suppliers.







» Neutral on impact of the merger for now

Between CSR and CNR, the latter has always been Midas’ main customer. While the merger may bring in more international contracts for CRRC, we expect the impact on Midas to be more mixed than positive:

1) post-merger, we believe CRRC is likely to win more overseas railway contracts, which could benefit Midas, assuming contracts for train car bodies flow down to Midas,

2) however, CRRC will also have higher bargaining power over suppliers, as it becomes the giant in the domestic railway market, which increases its ability to squeeze the margins of Midas,

3) another perspective is that when merged, CRRC will be able to save costs by eliminating overlapping expenses such as those on R&D, reducing need to pressure its suppliers, and lastly,

4) while Midas may have higher possibility of winning more contracts from CSR when CSR’s businesses are carried over into CRRC, it will also face intense competition from CSR’s existing suppliers. Hence, we remain neutral on the impact as it is still too early to determine the benefits, if any, which could flow down to Midas.


FV unchanged; maintain HOLD


As we continue to expect muted earnings in the upcoming few quarters, we retain our current assumptions. Hence, based on 0.6x target blended FY15F P/B, our FV estimate remains unchanged at S$0.30 for now. Maintain HOLD.

Previous story: MIDAS: How will it be affected by proposed merger of China CNR and CSR Corp?

 


Share Prices

Counter NameLastChange
AEM Holdings1.1300.030
Alliance Mineral0.125-0.003
Anchor Resources0.014-
AusGroup0.027-
Avi-Tech Electronics0.2850.015
Best World Int.1.360-
China Sunsine1.1400.010
CSE Global0.480-0.005
Food Empire0.495-
Geo Energy0.157-
Golden Energy0.2050.005
GSS Energy0.0840.003
HMI0.715-
ISDN Holdings0.235-
KSH Holdings0.420-
Miyoshi0.043-
Moya Asia0.076-
Nordic Group0.2900.005
Oxley Holdings0.330-
REX International0.0680.001
Riverstone0.915-0.005
Roxy-Pacific0.390-0.005
Sing Holdings0.405-
SingMedical0.380-0.005
Sino Grandness0.0500.004
Straco Corp.0.755-0.005
Sunningdale Tech1.4000.010
Sunpower Group0.480-
The Trendlines0.078-0.002
Tiong Seng0.230-
Uni-Asia Group0.7550.010
XMH Holdings0.153-
Yangzijiang Shipbldg1.5200.010

NextInsight RSS

rss_2 NextInsight - Latest News

Online Now

We have 3081 guests and no members online