China train

DBS Vicker analyst went to visit Nanjing Puzhen Plant of MIDAS and issue another buy report.

Outlook over the next 3-5 years is very bright. We believe that Nanjing SR Puzhen is in the process of looking at bidding for 4 to 5 more projects with a total potential 700-800 cars, which could lead to a doubling of Nanjing SR Puzhen’s current order book of RMB3.5bn. Whilst we can expect more clarity on the delivery of trains in FY08 for Nanjing SR Puzhen only in 1Q08, we are very confident about its prospects in FY09 and beyond (when most of its current order books will begin delivery).

Reiterate BUY and S$1.84 target price, which is based on 24x FY08 earnings, translating to 0.4x PEG on EPS CAGR of 50% over FY06-FY09F. We continue to like Midas as a play on China’s booming railway sector.

>> It is no secret that China government is set to spend lots of money in building the railway infrastructure across the country. MIDAS would be a key benefiary of this plan. The advantage of this investment theme is, it is unlikely to be affected by internal economy slow down or US slow down. Valuation has came down and become more reasonable now.