Midas announced that it has successfully raised gross proceeds of S$90.6m via a private placement of 120m new shares @ S$0.755/share. These represent 14.2% of its existing share capital. The placement price of S$0.755 was a 7% discount to the volume weighted price of trades on 15 Jul 09. Due to strong demand, the price was at the upper end of the indicative range of S$0.74-0.76.

Use of proceeds. Of the net proceeds of S$89.4m, about S$81m will be used for the expansion of its aluminium alloy production capacity, including the purchase of two new production lines. The remaining S$8.4m will be used for general corporate and working capital requirements.

Unexpected but positive. We view Midas’s fund-raising exercise positively for two reasons: 1) enabling it to keep gearing low, leaving ready untapped lines of credit with mainland China banks; and 2) strong demand from institutional investors on the back of Midas’s good fundamentals. We earlier expected Midas to take on bank loans to fund its expansion.

Capacity expansion. We earlier also assumed that the fourth production line would kick in from 2H2012. Given the funds raised and possible imminent contract wins, we now believe management may add two lines (fourth and fifth) concurrently to meet anticipated higher demand for aluminium extrusion profiles. We have updated our assumptions to reflect these two lines coming onstream in late 2010.

Forecasts raised by 5-24% for FY10-11. With the anticipated capacity expansion and contract awards, we raise our forecasts for FY10-11 by 5-24%. However, our DCFderived target price has been trimmed to S$0.87 from S$0.88 (unchanged WACC of 9.5%), taking into account the profit growth as well as EPS dilution. This translates to 16x CY10 P/E, slightly above valuations for China-based peers. As we highlighted in our note on 16 Jul 09, we continue to advise caution against over-pricing Midas on the back of the current market euphoria. Maintain Trading Buy.