Friday, October 4, 2013

XMH : Turbocharged engines of growth (NRA)

XMH Holdings.
Current Price S$0.41
Fair Value S$0.49
Turbocharged engines of growth

 Earnings below expectations. 1Q14 net profit of S$2.7m was 9% below our expectations, mainly due to lower-than-expected revenues from its distribution business segment.

 Maintain forecasts and fair value. Despite earnings just slightly below our forecasts, we believe the group should be able to make up for it in the next few quarters with its strong order book of S$70m as at 1Q14. Newly acquired Mech-Power Generator Group (MPG) will begin contributing meaningfully from 3Q14. We maintain our fair value at 49 cts, pegged to 12x FY14 PER. Potential catalyst could include another acquisition to widen its production range. We continue to like the group's stable cash generating business and consistent dividend pay-out. We maintain our Overweight recommendation.

 Year of open doors to growth. 2013 was an eventful year forXMH. . To recap, first it acquired its new location in Tuas to house its warehouse and workshop facilities for its expanding in-house brand of power generators. Then, it had its first major institutional investor, Credence Capital take a 19.9% stake in the group. XMH then acquired MPG to expand and develop its non-marine sector. Without any debt and a cash stash of S$45.5m, the group is in a favourable position to acquire another company to supplement its product range.

 Turbochargers of growth. As we see it, growth will come organically and through further acquisitions. It is building up its in-house brands of power generators and propulsion systems (ACEGEN and IPS) as well as providing strong after-sales services, resulting in high repeat sales which averaged more than 70% over the past three FYs. XMH order book is S$70m while MPG is S$40m, mostly to be recognized in FY14. Acquisitions will contribute to the second leg of growth. Already MPG will be contributing at least around 20% of net profits in FY15 and assist in strengthening its nonmarine business segment. Even without any further acquisitions, our estimates of earnings growth averages an impressive 26% per year over the next three years, implying a FY14-16 PER of 10.5x, 8.5x and 7.7x, respectively.

 Revenues decreased 2.5% yoy to S$21.4m mainly due to the decrease in its distribution business segment. Gross profit margins decreased 4.5% pts due to sales of lower margin products from the distribution business.

 Strong balance sheet. The group generated positive free cash flow of S$2.4m for 1Q14. As a result, its net cash increased from S$43.3m as at end April-13 to S$45.5m as at end July- 13.

Source/Extract/Excerpts/来源/转贴/摘录: NRA-Research,
Publish date: 02/10/13

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