This article was recently published on www.nracapital.com and is reproduced with permission
China's National Development and Reform Commission (NDRC) - calls on China Government to meet its railway investment target......this should be positive for Midas
IN MY 10 October 2012 Blog posting - I mentioned that investors should keep Midas in view even though its shares have risen 50%.
At last Saturday's Invest Carnival organised by ShareInvestor, I again highlighted Midas as a possible strong beneficiary from China's fiscal expansion - meant to revive a weakening external economy. I said that investors should see new high speed rail contracts being awarded after the new China Government is installed in early November.
Over the weekend, China's Xinhua Agency reported that China National Development and Reform Commission (NDRC) had called on the Government to meet its railway investment target for 2012. For 2012, China has only invested about 68% of its planned RMB500bn rail budget.
On a medium term basis, the outlook is more promising - China planned to have 40,000km of high speed rails by 2015. As at July 2012, it has only constructed about 13,000km. A couple of problems have inhibited the roll-out leading to a possible delay in meeting their 40,000km target:
a) China's rail Minister Liu Zhijun was removed in February 2011 and now faces possible corruption charges
b) the Shanghai rail accident in July
c) State banks cut back on lending for rail projects because the Ministry of Rail did not have enough money - the Ministry of Finance managed to raise RMB250bn in late 2011 which allowed work on some projects to continue.
The Midas chart below shows that the fall in share price reflected the Rail Minister's removal and also the Shanghai rail accident. Its risen off its low of $0.28 on the announcement of some municpal rail contracts.
I think China is priming to resume rail construction and with it rolling stock construction in 2013, rolling stock carriage frame makers such as Midas stand to benefit.
The announcement by the NDRC is another confirmation that the Chinese Government will resume rail and rolling stock construction soon.
While conservative investors would wait for the China Government elections in early November to confirm the resumption of rail contracts, less conservative investors may consider accumulating Midas shares at the current level......dont forget there is still risk but all the news so far is pointing to a positive 2013.