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.
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