XMH

XMH: DMG initiates at Buy with TP $0.26, based on 5x FY13e P/E plus net cash of $0.13/sh. Says XMH enjoys a special position of being the exclusive distributor of multiple marine equipment brands in multiple countries. XMH was recognised by Mitsubishi as its largest worldwide distributor for marine diesel engines for the last seven consecutive years. In particular, XMH is a proxy to Indonesian energy demand growth, as it counts half of the 90+ yards on Batam among its customers. With Indonesia being an archipelagic country its demand for tugs and barges will grow in line with energy demand and GDP growth. Indonesia needs to increase its oil & gas production as well to reduce the burden of its fuel and energy subsidies, hence the country’s drive into offshore oil & gas, combined with the Cabotage law, bodes well for stronger demand for small-/mid-OSVs. DMG adds XMH is attractively valued. Three quarters of the share price is net cash, with $51m in net cash, vs $68m market cap. EV/EBITDA is 1.2x which makes XMH an ideal acquisition target, were management inclined to sell. Believes XMH share price should be further underpinned by its capacity to raise the dividend payout by 30% to 1.3¢ per share, implying a yield of 7.4%. The stock remains untraded for today. Last closed at $0.175.