Presented by Tay, Hock Meng Friday, September 21, 2012€¦ · 2011 – Company received...
Transcript of Presented by Tay, Hock Meng Friday, September 21, 2012€¦ · 2011 – Company received...
Friday, September 21, 2012
Presented by Tay, Hock Meng
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Company Background 1
Industry Overview 2
Valuation 3
Risk 4
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XMH Holdings Ltd. is a diesel
engine, propulsion and power
generation solutions provider in the
marine and industrial sectors.
Source: Company annual reports FY 2012
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XMH Holdings, Ltd. (Singapore)
Xin Ming Hua Pte. Ltd.
(Singapore)
XMH Engineering Pte. Ltd.
(Singapore)
100.0% 100.0%
Source: Company website
Group structure:
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XMH’s vision
To be a Singapore multi-national company (MNC) in
the distribution of Marine & Industrial
Engine/Generator.
XMH’s mission
To be a leading & dependable total solution supplier
in Marine & Industrial application to meet its
customer needs.
Source: Company’s website 6
How is XMH fulfilling their mission goals?
2006 – Set up its People’s Republic of China (PRC)
office in Shanghai to support marketing activity.
2011 – Company received Mainboard-listing status
from Singapore Exchange (SGX). Established its
Vietnam (Ho Chi Minh City) office to support
marketing activity.
2012 – Company secured two additional distribution
rights, the Guangzhou Diesel and Kanmome Propeller.
Source: Company’s annual Report FY 2012 r7
Continue to work towards securing new distributorships and
increasing its product range to cater a wider market.
Exploring avenues to increase production capacity and
manufacture more of its in-house brands internally.
Making breakthroughs in key markets including India and
Vietnam.
Potentially looking into new markets, including Myanmar in
order to seek growth.
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Distribution
(90.0% of
revenue
segment)
Distributorship, agency or dealership
rights from reputable brands such as
Mitsubishi and Akasaka (Japan),
Hyundai Doosan and D-I (South Korea,
SOLE, Korsar, Reinties and CENTA
(Europe), Mentrade (Singapore).
Source: Company’s annual report FY 2012 9
After-sales
service, trading
and others
(10.0% of
revenue
segment)
•In-house brand and solution are:
“e-GEN”
The brand of XMH’s in-house range of
marine and industrial power generating
sets.
“XMH IPS”
XMH’s one-stop integrated solution to
vessel-owners requiring diesel engine (or
electricity) driven propeller-based
propulsion systems to power their vessels.
Source: Company’s annual report FY 2012 10
Distribution
partners, including
Mitsubishi,
Reintjes, Korsor, etc.
XMH
Holdings,
Ltd.
Marine
Products
Division
Industrial
Products
Division
Shipyards,
Vessel owners,
& dealers
Hotel proprietors,
Mine owners,
Main contractors
Revenue
Source: Company website
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1) XMH Holdings is on a path of seeking growth in new
markets, which will likely reap significant benefits to the
overall bottom line in the near term.
2) XMH is looking into the Myanmar market, which in our
view, a timely decision, given the recent improvements in
the political conditions in the country.
3) Potential risks could remain, including market
uncertainties stemming from China’s economic
slowdown, but opportunities remain if XMH is able to
manage their financial resources well, and undertake
sound business strategies to ensure its operations are well-
integrated.
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Historical quarterly revenue in absolute dollar terms (for
financial year ending in April):
0
5,000
10,000
15,000
20,000
25,000
30,000
3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
Jan Apr July Oct Jan Apr July Oct Jan Apr
Revenue (SGD'000)
Source: Company reports 13
Revenue distribution by geographic location
Source: Company annual report FY 2012
25.0%
60.0%
15.0%
% of revenue by country
during FY 2011
Singapore
Indonesia
Other
countries
22.0%
71.0%
7.0%
% of revenue by country
during FY 2012
Singapore
Indonesia
Other
countries
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Conclusion: Revenue exposure to Indonesia is high.
For financial year ending April 30:
Financial highlights
(SGD’000) FY 2011 FY 2012 % YoY changes
Revenue 70,237 62,249 -11.4%
Gross Margin (%) 27.8% 25.2% N/A
EBIT margin (%) 18.2% 18.3% N/A
Net income margin (%) 12.8% 15.3% N/A
Source: Company annual report FY 2012
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Balance sheet (Statement of financial position) as of
April 30:
Balance sheet (SGD'000) FY 2011 FY 2012 YoY % changes
Cash and cash equivalents 53,862 39,233 -27.2%
Current assets 78,674 80,318 2.1%
Interest bearing debt (short and long-
term) 2,316 0 -100.0%
Current liabilities 38,331 42,560 11.0%
Non-cash working capital (*) (16,748) (5,789) N/A
*: Non-cash working capital is defined as (current assets – cash and cash
equivalents) – (current liabilities – short-term interest-bearing debt). 16
Source: Company annual reports FY 2012
Statement of cash flow for the year ending April:
Statement of cash flow (SGD'000) FY 2011 FY 2012
Cash flow from operating activities
(CFO) 15,755 (1,291)
Net Interest after tax 977 (239)
Effective tax rate (%) 22.1% 18.5%
Net Capital expenditures (Net Capex) (70) (1,267)
Free cash flow to firm (FCFF) 19,601 (243)
Add: cash and cash equivalents 53,862 39,233
Less: interest-bearing debt (2,316) 0
Equity FCFF 71,147 38,990
Source: Company annual report FY 2012 17
Key financial ratios for XMH Holdings, Ltd. FY 2011 FY 2012
Liquidity ratios:
Current ratio 1.8 1.7
Quick ratio 1.4 1.2
Cash ratio 1.2 0.8
Efficiency ratios:
Days sales outstanding (DSO) 26.4 62.5
Days inventories on hand (DOH) 138.1 174.6
Days payables outstanding (DPO) 297.5 330.7
Cash conversion cycle (CCC) (133.1) (93.6)
Profitability ratios:
Return on invested capital (ROIC) (%) 162.3% 87.0%
Return on equity (ROE) (%) 45.5% 25.0%
Source: Company annual report FY 2012 18
Latest stock trading information on XMH Holdings,
Ltd. (As of September 07, 2012):
Stock trading information on XMH Holdings, Ltd.
(SGD/share)
Closing stock market price (SGD/share) (Sept 07, 2012) SGD 0.184
Day (low) SGD 0.182
Day (high) SGD 0.185
52-week low SGD 0.128
52-week high SGD 0.215
Volume 379,000
Source: Bloomberg.com 19
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Date
XMH
STI Sept 11, 2012 stock
price was SGD 0.18/share
Sept 12, 2011 stock price
was SGD 0.16/share
An one-year increase of approx. 12.5%
Source: Yahoo! finance.com
Risk Free Rate (%) 2.5%
Equity risk premium (ERP) (%) 7.5%
Beta (B) 0.9
Small-cap premium (%) 20.0%
Cost of Equity (CAPM), including small-cap premium (%) 29.4%
Cost of Debt (%) (based on FY 2012 actual figures) 0.0%
Weighted average cost of capital (WACC) (%) 17.8%
Source: Reuters.com, Bloomberg.com and our research estimates 21
Financial valuation for XMH
Assumptions on growth rates (%):
Base case
Growth assumptions
Initial 5-year growth (%) Input 0.0%
Terminal year (T + 1) growth (%) Input 0.0%
Source: Our research estimates 22
Financial valuation for XMH
Source: Company reports and our research estimates 23
Terminal
Year
FY 2013e
FY
2014e
FY
2015e
FY
2016e
FY
2017e
FY
2018e (T + 1)
After-tax EBIT (NOPLAT) 9,351 9,351 9,351 9,351 9,351 9,351
Less: Capex (543) (627) (812) (661) (700) (724)
Less: Depreciation and amortisation 328 330 339 332 334 335
Less: (Increase)/decrease in net working capital 6,483 (3,241) 1,621 (810) 405 (203)
FCFF (SGD'000) 15,618 5,812 10,498 8,212 9,390 8,759 29,792
NPV (FCFF) (SGD'000) 15,618 4,492 6,270 3,790 3,349 2,414 8,212
FCFF (NPV) (SGD'000) 44,145
Less: Debt and debt equivalents
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Add: Cash and cash equivalents, non-operating
52,239
Less: Adjustment factor
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Equity FCFF valuation (SGD'000) 96,384
Number of common shares outstanding (FY 2012) 400,000
Equity FCFF per share (SGD/share) SGD 0.24
Final valuation analysis
Fair value (FCFF) per share
(SGD/share) (XMH Holdings,
Ltd.)
SGD 0.241/share
Current market value per share
(SGD/share) (Sept 18, 2012) SGD 0.184/share
Source: Bloomberg.com, and our research estimates
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Valuation ratios for XMH Holdings, Ltd.:
Valuation ratio for XMH Holdings, Ltd.
Market price per share (SGD/share) (Sept 18, 2012) SGD 0.184
Earnings per share (Estimated forward FY 2013e) (SGD/share) SGD 0.034
Price-to-forward earnings ratio (PER) (No. of times) 5.6
Source: Reuters.com., and our research estimates
Thoughts on the valuation ratios for XMH Holdings, Ltd.:
1) The stock is currently trading at 5.6 times forward earnings, which is
as compared to the average industry peers forward twelve months PER of
approximately 22.0 times to 26.0 times. No definite peer in Singapore.
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Opportunities
1) XMH Holdings, Ltd. is in the business of
capturing a niche segment of the marine diesel
engine market,
2) XMH is looking into expanding into Myanmar,
3) XMH is actively developing their line of
proprietary products
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Risks
1) Prolonged slowdown in the shipbuilding, and
industrial segment might pose some threat to XMH.
2) XMH’s revenue exposure to Indonesia could pose a
threat to the business if there are political and
economic instabilities going forward.
3) Suppliers might pose some threat in the form of
forward integration, where they might bypass XMH
in their distribution process.
4) Order cancellations risks.
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Risks (Cont’d)
5) Foreign exchange risk is a significant risk as most of
XMH’s cost structure is denominated with a single
pair currency between US Dollars (USD) against the
Japanese Yen (JPY).
6) Credit risks are not significant at this time due to
low debt leverage, and positive free cash flow, but
could be an issue if there is a prolonged slowdown
in the shipbuilding industry, and/or a liquidity
crunch worldwide.
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Questions?
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