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.