Wednesday, September 18, 2013

XMH Holdings - Acquisition plans coming online (NRA)

XMH Holdings -
Current Price S$0.425
Fair Value S$0.49
Acquisition plans coming online

■ Expanding beyond the marine sector
XMH has acquired Mech-Power Generator Group (MPG) for S$17.4m. MPG has close to 30 years experience in manufacturing and assembling diesel powered generator sets (gen sets), with operations in Singapore and Malaysia. The acquisition will mainly help XMH develop its non-marine sector.

■ Raise forecasts and fair value
To account for MPG’s contribution, we raise our FY3/14-16 sales and profit forecasts by 15% to 33%. We raise our fair value to 49 cts from 34 cts, pegged to 12x FY14 PER (previously 10x FY14 PER) to account for stronger growth from the acquisition (FY13/14/16 net profit growth of 36%, 26% and 14% respectively), which translates into potential upside of 14%.

We upgrade the stock to Overweight as we believe that XMH will have the capabilities and opportunity to expand through this acquisition. We view this acquisition as prudent and fits well into its business. Additionally, we continue to like the group’s stable cash generating business and consistent dividend pay-out.

■ More Power to the Group
MPG supplies gen sets with power ratings from 20 kilovolt-ampere (kVA) to 2,500 kVA. These are huge gen sets that are typically used in shipyards and ports, data centres, airports and hotels. MPG’s current major project includes works with a major data centre here in Singapore, worth around S$40m spanning over two years. It assembles the gen sets in its 1.4ha factory in Iskandar Malaysia.

■ What’s in it for XMH?
The deal comes with a profit and NTA warranty. Total profits after tax and excluding extraordinary gains of MPG for FY03/14-FY03/15 should not be below S$6.9m, translating to S$3.5m per year of earnings contribution to XMH (XMH will only recognize Oct 13 to April 14 of MPG contributions for FY14).

MPG’s FY03/12 and FY03/13 profit was S$1.3m and S$1.7m, respectively. MPG will have to double its profits in FY14 yoy to meet its target.

■ We believe one plus one in this case, may end up greater than two
Doubling of profits for MPG will be challenging but achievable in our view. In order to achieve this target, MPG will have to leverage on XMH’s products and financing. With the strong balance sheet of XMH, this should greatly help in MPG’s expansion to clinch more projects where it was previously facing constraints.

Source/Extract/Excerpts/来源/转贴/摘录: NRA-Research,
Publish date:12/09/13

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