Midas

Midas? CFO (Mr Tan KT) who has been with the company for 10 years and 5 months has quit abruptly with his last day effective on 21 Aug?13. He holds 498,000 shares in Midas and has been responsible for the financial management and reporting functions of the group.

 

Midas is currently seeking a suitable replacement for Mr Tan KT and Mr Liaw KF, the company?s financial controller will assume the responsibilities until a new CFO comes on board.

 

Mr Tan KT has been our key point of contact since our initial coverage of the company in 2005 and having been with the company for 10 years and 5 months, his abrupt resignation is not good.

 

Historically, abrupt resignations of CFOs has not been good for companies in general and could signal problems ahead.

 

In Midas? case, the high profile accident 1+ year ago and as well as high profile corruption case of the railway minister is still fresh in investors memory.

 

And Midas is trading at 37x 2013 consensus forecast against its key customers such as China CNR?s 12x 2013 PE and China CSR?s 15x 2013 PE means the stock is not cheap.

 

Due to the abrupt resignation of Mr Tan KT, we are ceasing coverage on the company henceforth and our last HOLD recommendation would no longer be relevant.

 

 

MU trains bidding restarted

After two years of silence, bidding for MU trains has been restarted. Recently, China Railway Corporate convened a meeting to study and decide the bidding, which will include MU trains, passenger trains, locomotives, cargo trains. The total bidding amount this year is estimated to be around RMB 100 billion yuan.

It is learned that China Railway Corporation has started the purchase of locomotives, MU trains, passenger trains, and cargo trains based on new increase of operation mileage and passenger and cargo transport this year. The total purchase volume is more than RMB 50 billion yuan, and MU train bidding will not exceed 50 percent of the total amount, concentrating mainly on highly cold-resistant trains operating in the Northeast. This is the first restart of MU train bidding since the " 7.23" Ningbo-Yongzhou railway accident that has resulted in great loss.

In 2011 and 2012, there were several railway equipment biddings for cargo trains, passenger trains, and locomotives, but MU train bidding had been suspended. Compared to cargo train, passenger train, urban subway train, or locomotive those unit prices range from tens of thousands of RMB to tens of millions of RMB, MU train, whose unit price generally exceeds RMB 100 million yuan, can be more efficient to boost the development of equipment manufacturers and related industries.

According to experts, the restart of MU train bidding indicates that the problem of railway construction fund has been solved and that railway is once again on the track of rapid development.

The 2013 National Railway Work Meeting proposed RMB 650 billion yuan of railway fixed asset investment this year. Of this, RMB 130 billion yuan is for the purchase of vehicles and updating and renovation, increasing by 14 percent year on year. After adjustment, the annual budget of fixed investment this year is RMB 660 billion Yuan, RMB 530 billion Yuan of which will be invested in infrastructure construction. This means that the extent of vehicle purchase and updating and renovation would increase.

Leapfrog development of railway equipment

According to the adjusted national Medium- to Long-term Railway Network Planning, in 2020, total length of railway in operation in China will reach 120,000km, with 16,000 km specifically for passenger transport in busy main lines, passenger transport and cargo transport are separated, with double-rail rate and electricity-driven rate both reaching 60 percent a railway network is basically completed that is reasonably laid out, clearly structured, fully functional, and smoothly connected the transport capacity will meet the needs of the development of the national economy and society main technologies and equipment reach or approach advanced international standards.

As of the end of 2012, China's railway in operation reached 98,000km and high-speed railway 9,356km. That is to say China needs to build another 25,000km of railway, including 6,644km specifically for passenger transport. These rails all require large amount of new railway equipments. Take the Xiamen-Shenzhen high-speed rail as an example. According to people from Guangzhou Railway Corporation, in this year 20 sets of MU trains with speed of 200km/h have been purchased for the 502.4km long Xiamen-Shenzhen high-speed rail. One set of MU trains with speed up to 200km/h costs about RMB 150 million Yuan. At this price, the Xiamen-Shenzhen line alone requires investment of at least RMB 3 billion Yuan for the purchase of vehicles.

The rapid development of railway will directly promote the upgrading of the railway equipment manufacturing industry. In 2004 and 2005, CSR Sifang, CNR Changchun Railway Vehicles and CNR Tangshan Railway Vehicle imported technologies from Bombardier, Kawasaki Heavy Industries, Alstom, and Siemens and made joint effort to design and product high-speed MU trains. In three years' time, China produced 140 pairs of made-in-China CRH MU trains with speed of more than 200km/h. Later, China upgraded to the 350km/h platform from the 200km/h platform. At its maximum speed, the CRH380, which China has developed independently, will run 60km faster per hour than high-speed trains of Germany and France and 80km faster than Japan's Shinkansen it also outperforms other trains in terms of environmental friendliness and comfort.

Experts predict that large investment in the construction of high-speed railway in China will continue in the next five years. The construction of exclusive passenger lines will release the cargo transport capacity of existing lines, bringing about the renovation of cargo trains and existing lines for heavy loading. In the future, the renovation of high-speed rail and cargo lines and the construction of urban railway transport will boost the development of railway transport equipments in China.

Transport capacity demand keeps going up

Will such large investments result in the excessive production capacity of the railway equipment manufacturing industry? Experts say that this is not a concern at all, because the rapid development of railway equipment is backed by the rising of demand.

First, the explosive growth of passenger flow volume. As more and more lines are launched and high-speed lines connect into a network, the passenger flow volume on railway has increased markedly in the first half of the year. According to statistics published by China Railway Corporation, in the first 6 months, all high-speed rails and exclusive passenger rails had seen dramatic increase of passengers a total of 1,947 MU trains were dispatched daily, carrying 1.672 million passengers, the passenger count on May 1 being 2.763 million, making the highest daily transport record of MU trains. In the first half of the year, China's railways carried a total of 1.01 billion passengers, up 10.9 percent compared with the same period of last year. It is estimated that the MU trains currently in operation can meet only 70 percent of the transport demand and the remaining 30 percent needs to be filled up.

Besides, more and more cities are coming to the realization that inter-city railways and railway transport can bring in huge economic benefits. In the State Council's routine meeting convened recently, it was proposed that the ownership and operation rights of branch railways, inter-city railways, and resource-exploitation-oriented railways will be first opened to social capital currently, cities are busy promulgating investment plans about inter-city railways.

The New Urbanization Development Plan, the formulation of which has been led by the National Development and Reform Commission, currently involves the construction of 20 city groups, over 180 local cities, and more than 10,000 towns. According to the plan, boosting inter-city development through inter-city railways and metropolitan railways will be the development strategy, which may become the growth point for a new round of railway construction. It is calculated that in the next 30 years the need for inter-city railway MU trains may reach or exceed 45,000 sets, an average need of more than 1,500 sets annually.