Excerpts from analysts' report
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» New contracts worth SGD23.1m. XMH has secured new contracts worth SGD23.1m, of which SGD15.5m were awarded to Mech-Power Generator (MPG) and the remaining SGD7.6m to Z-Power. MPG’s contracts are for backup generators for a data centre worth SGD7.8m, which it expects to fulfill in Sep 2015, and for a healthcare centre worth SGD7.7m for deliveries between Sep 2015 and Mar 2017. Z-Power’s contracts involve the supply of electrical packages to a variety of vessels, with deliveries between 2015 and 2016.
» Receives prestigious certification. Z-Power was awarded the prestigious ABB Value Provider certification, which allows the company to market as well as build and assemble ABB liquid and air-cooled variable frequency drivers outside of Finland. From this, we estimate approximately SGD20m of recurring revenue for Z-Power going forward. We believe that contributions from MPG and Z-Power, coupled with a gradual recovery in the Indonesian market for XMH’s core engine business, would enable earnings to grow 75% in FY16F.
» Focus on the cash. XMH’s gross profit margin was strong, at 31.7%, in 3QFY15 (Apr) and we expect its profitability to be maintained going forward as these new contracts may likely result in similar margins. It should also generate healthy SGD28m/20m in operating cash flow in FY15F/FY16F, on the back of its healthy orderbook.
» Key risks include a delayed recovery of engine orders in Indonesia.
» Valuations are undemanding. Valuations are undemanding, at 6.2/3.8x FY15F/FY16F EV/EBITDAs and a 5.1% yield. We maintain BUY, with a SGD0.30 TP based on 10x FY16F P/E – which is at a slight premium to its peers’ 8-9x – as XMH offers significantly higher ROICs of 17-20%, has strong cash generation and is in a net cash position.
Full report here.
