| 2010 | (s$000) | 2009 | ||
| Revenue | 207413 | 149993 | ||
| COGS | 137939 | 93398 | ||
| Net Profit | 48508 | 37259 | ||
| Cash | 244722 | 101223 | ||
| Receivables | 99984 | 54934 | ||
Midas reports a 2010 year end net profit of S$48.5 mil, a yoy growth of 30.2%. Revenue increased yoy by 47.7% to S$207.4Mil. Gross profit margin however falls from 37.7% (2009) to 33.5% (2010). Current assets increased more than 2 folds from s$174million to s$381million. This is probably the result of a significant cash inflow by the proceeds of Midas Dual listing activities in the Hongkong Stock exchange during the third quarter of 2010 coupled by a double leap in receivables and inventory holdings (yoy).
| Financial Ratio | 2010 | 2009 | ||
| Debt to Equity | 0.31 | 0.35 | ||
| Current Ratio | 3.4 | 1.8 | ||
| Net Profit Margin | 23.40% | 24.80% | ||
| Gross Profit Margin | 33.50% | 37.70% | ||
The slight decrease in margins is mainly due to higher Cost of goods sold. The rising price of commodity which includes Midas primary product Aluminium is the major cause of the COGS increment. Stability of debt to equity ratio implies on Midas ability to be consistently solvent. Higher liquidity ratio increment in 2010 means that Midas may effortlessly be able to meet its short term obligation. However, the huge increase in receivables is a slight concern in terms of potentially incurring more bad debts for Midas in future.
DUPONT MODEL
| 2010 | 2009 | |||
| ROE | 11% | 20.70% | ||
| = | = | |||
| Tax burden | 81.20% | 80.80% | ||
| x | x | |||
| Interest Burden | 96.90% | 98.30% | ||
| x | x | |||
| Operating Profit | 29.70% | 31.50% | ||
| Margin | x | x | ||
| Asset Turnover | 35.60% | 42.90% | ||
| x | x | |||
| Financial Leverage | 1.33 | 1.95 | ||
The above analytical method is done using the extended five part DuPont system of analysis. This approach is used to analyse the Return on Equity (ROE) of Midas using different function of ratios to break down its ROE value.
2010 Sees a marginal drop of ROE from 20.7% to 11% from the model above. The main culprit of such decline is mainly due to lower Financial leverage (Higher equity) taken by Midas, Asset turnover rates and lower operating margin. While lower financial leverage may not be all bad for the company itself, shareholders should be concerned by Midas aggressive stance in transferring majority of its risks to its equity holders amid planned expansions of more Aluminium production plants throughout China. While we celebrate Midas welcoming surge in its revenue, we must still be mindful that such results may not signify that Midas is doing well in successfully generating substantial revenue with the assets it has on hand. One could see from its balance sheet that Midas is holding too much Cash and Shareholder must take note of what Midas may be doing with these excessive warchest at its disposal. The slight decrease of Operating Margin is again due to the increase in cost of good sold and is regarded as a conservative decline considering the effect of the firm's expansion strategy and its huge number of contracts on hand.
Comments on Value: Price-to-book Ratio lowered down to 1.6 from 2.2 previous year indicating that the company is more valuable as compared to last year's book ratio at its current market price. Reduction of ROE may stir some concern among value investors although percentage of returns still remains marginally above the warning sign of below 10%. The price of Midas share will continue to be affected by news concerning uprising in the Middle East due to Midas vested interest and also adverse news related to China railway minister's share purchasing scandal. These will continue to incite fear on shareholders to further sell on any unwelcoming release of information although its highly speculated that it should not significantly affect Midas current projects. Price of range between 0.72-0.78 is still relatively a value buy as it remains at 52 weeks low.
Verdict: If the news remain intact concerning the already battered stock. Investors should ride the winds of change and expect the shares to hit 0.80 or higher in the month of March follow by reports of higher yoy revenues growth, increased net profits and more contracts. Price target ($1.25 before 2012).
Declaration: Analysis was based on my own opinion and done without any comparison to its industry peers and also on the basis that I'm a shareholder of Midas Holdings. I hold no responsibility for any loss incurred by anyone as a result of my proposed target price and analysis of this company.
