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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0

500

1000

1500

2000

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3000

3500

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0.02

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0.1

0.12

0.14

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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

-

Add: Cash and cash equivalents, non-operating

52,239

Less: Adjustment factor

-

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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