both contracts will have positive impact on its financials from 2009 - 2011.Immediate positive accretion. Midas Holdings (Midas) announced

More contracts to come?

guidance that it could win between S$200-300m worth of contracts this

year. This contract translates to about S$120m and doubling this amount

is plausible with Midas' track record of delivery and position as a PRC

certified supplier to the world's train manufacturers along with the China

Northern Railway and China Southern Railway groups.Management was upbeat on meeting its

Double edged sword.

that Midas will likely have to raise its capacity with new production lines or

find partners to outsource some of the less technically demanding parts.

Midas' last reported a net cash position of about S$11m and annual

operating cash flow of about S$32m. Should new lines (costs S$30-35m

each) be considered, we think that Midas might need to raise capital.

Nevertheless, we think such an exercise would be viewed positively as it

caters to tangible assets for earnings expansion.However, winning contracts at this rate will mean

Bumping up estimates, upgrade to BUY. T

investment case in a different positive light. Previously, the high spending

on capex was not met with an increase in contract wins and this created

share price drag. However, winning these contracts authenticate Midas'

aptitude for technically challenging requirements and instils earnings

visibility. We have bumped up our net profit by 2-11% in FY09F and FY10F,

respectively. Our revisions are conservative as we assume a reasonable

ramp up of its 3rd line coupled with status quo in product pricing for the

new contracts. Our PER peg is revised up to 15x FY10F PER (prev. 12x

FY09/10F) and we upgrade Midas to a

(prev. S$0.64). We think our new 15x PER peg over STI's 12x PER is

justified given Midas' earnings visibility, growth and its position to benefit

from the impending deluge of railway spending from the Chinese

Government.

 his development puts Midas'BUY with a fair value of S$0.85

Target price: $0.82 (Maintained) Previous day closing price: $0.655

Secures two contract worth RMB603m

Midas has secured two contracts worth RMB603m to supply aluminum alloy extrusion profile for 100 inter-city high-speed train sets (1,600 train cars) to subsidiaries of the China Northern Railway Group (CNR Group). This will comprise of a 50 train set RMB306m contract from CNR Changchun and a 50 train set RMB297m contract from CNR Tangshan.

Beijing-Shanghai High-Speed Line

The train cars involved will be part of the "CRH3-380" project which has speeds of up to 350km/h. We believe these cars will be used for the Beijing-Shanghai High-Speed train line. This amounts to a high profile and prestigious project and is also Midas’s single largest project to date.

Largest order to date firms up revenue visibility

We estimate these contracts, which will be delivered from 2H2009 to 2011 will involve about 18,000 tonnes of Assuming an even delivery schedule, these contracts alone will utilize about 25% of Midas’s enlarged 30,000 tonnes per annum production capacity during this period. It also forms 30% and 28% of our revenue estimates for FY10 and FY11 respectively.

Will utilize third production line

While initially produced on its existing lines, this project will involve the upcoming third production line once it comes onstream in 1Q2010. A minor portion of the contracts will also be for downstream fabrication work on the profiles, which we believe will eventually aid Midas’s foray into this area.

There is more to come

As highlighted earlier in our 9 June report "The Fantastic 4