Panic reigns as China railway play Midas falls to historic lows

MIDAS Holdings, which supplies aluminium parts to China's trains, continued plunging to all-time lows amid debt and earnings outlook concerns.

Its shares closed on Friday at S$0.148, down S$0.006 or 3.9 per cent. Over 39 million shares changed hands, a high in volume not seen in years.

The company was trading near S$0.20 just a week ago. But within a few days, shares have fallen more than 25 per cent. It is now trading at about a third of its last reported net asset value.

Replying to a query from the Singapore Exchange (SGX), chief executive officer Patrick Chew said that other than its previous announcements, the company is not aware of any information that explained the share trading activity.

DBS analyst Paul Yong, who has a "buy" call on the stock, told The Business Times that he remains confident in the company.

He does not see any impairment risk on the company's assets or receivables, due to the strong credit quality of Midas' state-owned enterprise and multinational company customers.

The stock had been sold down initially due to worries that it had defaulted on its US$30 million 7 per cent fixed rate notes, he said.

On Thursday lunchtime, Midas announced that the maturity date of the notes has been extended by a year, till Nov 23, 2018.

The selling continued, however, as investors were worried about future spending on infrastructure projects in China, Mr Yong said.

Last week, influential financial magazine Caixin reported that a 30 billion yuan (S$6.1 billion) metro project in Baotou city in Inner Mongolia was cancelled by the central government in early August due to concerns that the project was too ambitious for a small city.

"Is this an individual case, or is it the beginning of a slowdown in national infrastructure spending?" it asked.

Other cities are also facing problems in getting their subway plans approved, Caixin said in another article.

Mr Yong from DBS said that he firmly believes that the worries are unfounded and unwarranted.

Midas has extended its debt on the same terms for another year, while its recently reported nine-month earnings have more than doubled.

"Although (that) is slightly below our expectations, the company is still showing positive momentum to improve its earnings," he said.

As of end-September, Midas has about 1 billion yuan of cash and deposits, and 2.4 billion yuan of receivables on the asset side of its balance sheet, against 2.5 billion yuan of secured debt and nearly 2 billion yuan of unsecured debt. About half of the total debt is due within a year.