Reports strong quarter. Midas Holding (Midas) posted 2Q09 revenue of S$37.8m (-2% YoY, +20% QoQ) and bottomline of S$9.4m (+10% YoY, +11% QoQ). Utilisation came in at maximum (we estimate ~90%) for the quarter for heavy products, driving the company's revenue. Midas also was finishing up the tail end of favourable contracts that had cost-plus covenants. While this translated to better margins, we believe that the recently won contracts are on a fixed cost basis. Thus, gross margin for its Aluminium division should tail back down to the mid-thirties over the next few quarters.

Extending value chain, protecting margins. Midas have/will be spending up to S$45m for the construction of three downstream fabrication lines that will be able to process about 1000 train cars/yr. The first line is already operational while the second is slated to contribute in 1Q10. The final line is tentatively targeted for 2H10. The three lines are part of Midas' strategy to cement its dominance and sustain margins in the domestic railway industry as it transforms into a one-stop shop for aluminium train profiles and components. Competitors are still embarking on the profile extrusion business.

Order book status. Midas has about RMB1.4b in its order book that will keep its extrusion lines busy till 2011. China's Ministry of Railways has closed its 2nd tender for the production of 4150 train cars (double of previous tender). Midas expects the awards to be announced Sep-Nov 09 to China Northern and Southern Railway (CNR and CSR). Contract flows for the profiles should be awarded shortly after and we expect Midas to reap a bountiful harvest with its expanded production capabilities. Nanjing Puzhen Railway Transport (NPRT) delivered only two train sets this quarter and has to ramp up its delivery in 2H09 to fulfil its 768 train car backlog that will last till 2011.

Non speculative, backed by orderbook. The case for its sovereign backed JV with Chinalco, North East Light Alloy (NELA), drove P/E parameters up to the mid-70s in 2007 as investors speculated on exponential earnings growth. The financial crisis, failed NELA JV and bad press on its chairman brought valuations back down. Today, Midas' firm order book of RMB1.4b, more anticipated contract wins in Sep-Nov 09 for both NPRT and itself will serve to under-gird valuations. We have pegged Midas at 20x (prev. 18x) FY10F PER and our fair value is S$1.05 (prev. S$0.93). Maintain BUY.