XMH Holdings

UOBKayhian on 22 Jan 2013

Valuation

·          XMH Holdings (XMH) is trading at 9.37x FY11 PE and 2.04x FY11 P/B.

·          Tan Tin Yeow, the chairman and CEO of XMH, together with his family hold a 77.41% stake in the company. With such high commitment to the company, management’s interests are well aligned with investors.

·          The company has repurchased about 2% of its shares through its buyback scheme from Jan-Feb 12.

·          Share price catalysts include possible announcement of special dividend and continued company share buybacks.

Investment highlights

·          XMH is a distributor of diesel engine, propulsion and power generating solutions in the marine and industrial sector, carrying exclusive distribution for some reputable brands such as Mitsubishi, Hyundai and SOLÉ in the region.

·          70% of XMH’s sales are from repeat customers. This strong customer loyalty can be attributable to the following competitive strengths:

o         After-sales services (approximately 8-10% of total revenue for FY09-12).

o         In-house brand/customised solution (accounts for 20% of product sales and has a wider profit margin).

·          Diversified customer base. XMH’s clients are mostly ship owners. However there is no major customer contributing more than 5% of XMH’s total revenue.

·          Excellent working capital management. XMH has a 120 day credit term from its suppliers, but a 60 day credit term for its customers. In addition, it requires a 20% deposit from its clients before placing an order. This allows XMH to be in a negative working capital position, having a low cash conversion cycle and high inventory turnover. (About 85% of total inventory are for contracted sales)

·          High dividend yield. While the company does not have a dividend policy, XMH has been paying 1 cent dividend for the last 2 FY. This equates to a 4.44% dividend yield. A special dividend may be expected for this FY with 1HFY13 sales being close to 80% of FY12 sales.

·          Future plans: The company plans to

o         Establish its own assembly line for in-house range of power sets.

o         Introduce rental of in-house brand e-gen set to its network of shipping clients.

o         Expand into the industrial sector through JV and M&A.

Financial Highlights

·          Revenue increased 180.7% in 2QFY13 due to an increase in demand for its distribution and value-added products & services, and clearance of back-log orders.

XMH Holdings

UOBKayhian on 2 Jul 2012

Investment Highlights
· Core profit decline. XMH Holdings (XMH) reported FY12 profit of S$9.5m, up 5.9% yoy. Excluding the one-off gains of about S$3.9m, profit would have been down 37.6% yoy. FY12 was a particularly challenging year due to the appreciation of the yen as XMH distributes Japanese manufactured engines, which are purchased in yen. In addition, disruption due to the Japanese earthquake, project delays and rescheduling of deliveries also affected the group.
· Putting the worst behind. We believe that XMH’s orderbook has increased 30-40% from one year ago, driven by higher demand from smaller tugs and barges in Indonesia. XMH is expected to benefit from the growing coal trade in Indonesia coupled with the implementation of the cabotage law in 2011. On the other hand, XMH may face further order cancellations if credit markets deteriorate and ship-owners are not able to secure financing.
· Beneficiary of growth in oil and gas sector. XMH is also a beneficiary of increased new-buildings of offshore support vessels and higher demand for after-sales services and spare parts.
· Expanding product range. XMH is establishing a new facility and assembly line to develop its in-house “e-gen” range of power generating units. The group has also recently secured new principals like Guangzhou Diesel and Kamome Propeller, which will increase its product offering.
· Geographical expansion. XMH has set up representative and marketing offices in Vietnam and India, and is on track to secure new revenue streams in these new operating geographies.

Valuation
· No direct comparables. XMH does not have any direct comparable peers in the marine engine distribution space. The group is trading at 6.8x trailing PE, compared to Kian Ann Engineering which is trading at 5.0x. Kian Ann Engineering is a distributor of industrial components for the mining and construction industry.