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A Midas-Touch from Midas Holdings In 2013

Midas Holdings Limited (SGX: 5EN) announced its financial results for the financial year ended December 31, 2013 (FY2013) last Friday evening.

The company was founded in 2000 and has a good history of supplying to China’s rail transportation sector as well as exporting its products to other parts of Asia and Europe. It is currently the “leading manufacturer of aluminium alloy extrusion products for the passenger rail transportation sector in [China]”.

In addition, Midas owns 32.5% of Nanjing SR Puzhen Rail Transport Co., Ltd (“NPRT”), an associate company engaged in the development, manufacturing and sale of metro trains, bogies and their related parts. NPRT is licensed to manufacture metro trains on a nationwide basis in China. So, it’s possible to see a positive impact on Midas’ results and the demand of its products should NPRT get awarded transportation-related contracts from the Chinese government.

Some basic numbers

Total revenue accelerated 32.0% from RMB869.5 million in FY2012 to RMB1.15 billion in FY2013, mainly attributable to higher business volume from its Aluminium Alloy Extruded Products Division. Investors should take note that this division accounts for the main bulk of Midas’ total revenue at approximately 95.7% (or RMB1.10 billion).

Within the division, revenue is further segmented into three groups based on the end usage of its products: Transport Industry; Power Industry; and Others. The first group, the Transport Industry, which deals with the supply of aluminium alloy extrusion profiles for freight wagons, was the largest revenue contributor, accounting for 67.1% of the Aluminium Alloy Extruded Products division’s FY2013 revenue.

Meanwhile, the Others group is involved mainly with the supply of aluminium alloy rods and other specialised profiles for industrial machinery and makes up 25.8% of the division’s revenue. The last group, Power Industry, accounts for the remaining 7.1%.

The company’s overall gross profit margin was 24.5% for FY2013, down from 28.9% in the previous year. This was mainly due to a change in product mix in FY2013, which included sales of aluminium alloy extrusion profiles for freight wagons that usually command lower processing fees and hence, a lower margin.

In line with the higher business volume, selling and distribution expenses also increased 35.0% to RMB54.5 million in FY2013, up from RMB40.4 million in FY2012. This was a result of higher transportation and travelling expenses.

All told however, the company’s profits that belong to its shareholders had hiked up 71.3% from RMB27.8 million to RMB47.7 million on a year-on-year basis. Besides the growth in revenue, Midas’ profits were boosted by two other factors: 1) Its associates had contributed RMB13.6 million in profits in FY2013 compared to a loss of RMB5.7 million in FY2012 and; 2) the company’s income taxes had shrunk from RMB18.1 million a year ago to RMB16.7 million.

Financial Position

Midas’ balance sheet has cash and cash equivalents of RMB 1.046 billion as of 31 Dec 2013, up 91.3% from RMB 547.0 million at the end of 2012. The jump in the company’s cash holdings can be attributed to the increase in its total bank borrowings which went up from RMB1.47 billion to RMB2.60 billion.

Outlook

Under the Chinese government’s latest 5 year plans, it has seen them provide “continue[d] support to grow China’s transportation network”, which would see approximately RMB630 billion injected into railway fixed-asset investments in 2014.

Patrick Chew, Chief Executive Officer of Midas, said, “In FY2013, Midas secured approximately RMB812.5 million in orders from international and PRC customers, which included our first high-speed train contract since 2011.”

He added: “We remain optimistic about the outlook of China’s railway industry over the mid to long-term. With Midas’ leadership position in the PRC market and NPRT’s capabilities, we are confident that the Group will be able to tap growth opportunities in the PRC railway sector, other product segments and in export markets.”

Valuation

Midas last changed hands at S$0.465, sporting a lofty P/E ratio of 60.36. The Group has proposed a final cash dividend of 0.25 Singapore cent per ordinary share. In total, this works out to a total dividend payout amounting to 0.50 Singapore cent per ordinary share for FY2013, translating to a dividend yield of 1.08%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn't own shares in the companies mentioned.