Ann: Successful Completion of IPO, page-8

It should seem every 1 cent drops or increases, approx $1,260,000 flows to/off the bottom line according to the Prospectus page 74.

I believe Midway should have the experience to hedge this to a relatively safe level should the FX market be not significantly volatile.

The major risk is from the industry nature: cyclical. Like the oil business, the commodity price and weather conditions which are both basically out of control of the management. A 1% movement in the dry fiber content (weather conditions) may have approx a $3,360k impact on FY17 NPAT. Let's pray for dry years to come.

Look at Midway's 2013 results. It made an accounting loss probably due to flat volume and depressed price according to the prospectus' industry history review whilst the operating cash flow and free cash flow in that year remained happily positive whilst in good years profits can turn fat in a significant way, e.g FY15&FY16. FY13 can't be the first time it made a loss and won't be the final either.

Although keeping its specialty in woodchip processing and selling, Midway is going to transform itself to an asset light company complemented with forestry management services instead of being a plantation company which would carry a large biological assets on its balance sheet. Actually it has already sold down its biological assets, making its balance sheet light and it seeks to secure more supply in the future to meet the seemingly growing demand from Japan and China.

Another thing that I see as a setback is that before IPO, during FY16, management paid a fat fat dividends EVER ($71 million) to themselves by consuming all of the proceeds from the sale of its biological trees and drawing down the cash assets. Although the trailing pre-tax profit to interest cost is still very safely well over the historical level, this dividends paid out decision has greatly reduced its quick ratio to 1.4 and the net debt ratio increases significantly, both of which could be seen as a new capital structure altered to match the capital light balance sheet.

Generally what makes me feel good about this company is that except for the CEO, the remaining experienced board still holds very very significant shares which is approx >62% and subject to escrow for 1 to 2 years. FY2016 is a very good year and whether it is a peak year and how long this tide is going to last remain to be seen.

The only selling party is CEO himself who was just been appointed for 1 year and the Company itself didn't raise any money. I mean this can't be the case that CEO is the only smart guy in this IPO and other board members are fools. At most, the IPO price is a fair price from a 2 years time horizon. Otherwise if other major shareholders, the board members think the tide is going to turn, why do they lock themselves ENTIRELY and even buy more right after the float?

Valuation:

Current market cap suggests a FY16 PE approx 7 and a trailing PE appox 11.5 and trailing price to free cash flow only 6.4 according to the forecast FY17 results in prospectus. Although current PB is a bit over 2.2, a higher ratio like 2 should be reasonably expected from a capital light company.

It is not a sure win undervalued company but considered the board's interest is so heavily aligned with shareholders, the current price is very fair.

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The above is not investment advice. Please do your own research.