Earnings forecast for Midas Holdings crash by 75%

Near-term orderbook uncertainties linger.

According to CIMB, it anticipates near-term price weakness from lower order book visibility for Midas Holdings. CIMB adds that it slashes its FY13 estimate by 75% due to our lower order assumption but keep FY14-15 numbers.

Here's more:

We stay Outperform with an unchanged target price, based on 17.3x CY14 EPS, a 10% discount to the 5-year historical average. Catalysts could come from faster-than-anticipated contract wins.

In our view, the proposed Ministry of Railways reform will be a longer-term positive for the railway industry. We anticipate greater funding involvement from the central government, eradication of corruption (hopefully) and focus on quality supplies.

Midas, with its reputation as a quality supplier, is likely to benefit from this development. However, till details of the reform are finalised, we are likely to see a standstill of high-speed train car contracts in the near term.

We think that our FY13 estimate is too optimistic and lower it by 75% as we cut our order wins assumption.

Diversification gaining traction Midas has been able to support its order book with metro, international and power contracts in FY12. We believe this shows traction gained in its diversification efforts and its recent slew of contract wins bears testament to that.

Management continues to see strong order momentum from metro and international contracts.

Midas is also exploring supplying aluminium extrusion profiles to ex-railway industries. We believe more will be revealed over time.

It seems counterintuitive to maintain Outperform after slashing earnings. However, potential order book expansion is our key investment thesis. That thesis remains; we merely delayed timing for high-speed rail(HSR) contract wins.

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