Midas Holdings

Just met a few healthcare hardsellers today. Purposely bua some cream on you ( even on my face okay!? ) first before doing the talking. I must say this method of selling might be quite effective, if that fellow conducted himself well. Too bad I cant really understand him and don't really like his method of hardselling.

Today I've bought a common stock, which is quite in contrast of my investing principles.

Pls visit their website @ : http://www.midas.com.sg/

Their core business is alumnium, pipe production and a Joint Venture with a Chinese firm in making subway trains.

The reasons why I bought this stock was partially after reading "Common stock and uncommon profts". The stock broadly fits into the 15 buy points that the book mentioned ( will mention another time if got time, hope wun bore you ) and most importantly, good corporate governance. People are always willing to pay a premium for good and efficient management. This, I believe should be the number rule all investors should follow.

Why I said its very different from my investing principles was because this stock is considered relatively "expensive", with a P/E ratio of 11. I acquired the other stocks in my portfolio for an average PE of 5 or 6?

So to recap what is P/E, its commonly known as the price/earning ratio. So a high ratio could mean people are over-paying for it and/or a low earning. Usually stable stocks like SMRT, SPH, Singtel have a higher P/E and I believe its because of their steady dividend policy, proven business model etc and people are willing to fork a premium price to purchase it.

This stock is considered relatively small capped given its small market capitalization ( how much market share ). Hence, their dividends are not as steady as the long time players like banks etc. But the reason why I'm willing to pay a premium for this stock is because of visible earnings in sight.

A) The Chinese govt has pumped 4trillion yuan into infrastructure building etc. Although its widely known for corruption in local governments, however I believe at least 50% of the spendings will be able to "reach" the economy. Given China's relatively inadequacy in public goods like transport, spending on transport like roads and railways is definitely good for the economy in the long run. Hence, Midas will tend to benefit from the stimulus given its business model : more demand for aluminium, more demand for train cabins etc.

B) Good corporate governance : as mentioned. Management are mainly Singaporeans. Also, dividends were declared for the past few years, in contrast of S-Chips where dividends are seldom even though they were making profit. Notice there is a very broad assumption behind this point and I would answer anyone who bothers to probe why! =)

C) Adequate diversification within the business itself. Midas, having three similar yet different production lines, will tend to be less affected in the case of one type of business not performing.

Of course, there are of course downsides of this stock. Rising steel and commodity prices are definitely gonna hurt their profit margin which in turn hurts me. Being considered relatively new ( been around since 2000 ), though they have relatively adequate experience in handling SARS, not being around the 97 Asian Financial Crisis means that they might not have adequate experience with regards to a Financial Crisis, which is totally different from an epidemic.

I've been following this stock and saw this stock bouncing back around 100% from its all time low of 40c in March. That time Jig has been telling me about this stock but I simply cast it aside due to relative "expensiveness". Now I've learnt to appreciate the beauty of this stock and will simply like to say sorry to Jig for not heeding his advices at that time!