XMH Holdings

XMH Holdings: Acquired Mech-Power Generator Group for aggregate $17.4m. The acquisition will expand XMH's core business and its offering of power generating sets to include large customised solutions in non-marine sectors which include buildings, hospitals, education centres, data centres, airports, hotels and resorts infrastructural projects. The consideration will be paid with cash ($8.7m) and share issue ($8.7m). A net profit warranty of not less than $6.9m for both FY2014 and FY2015 and NTA warranty of not less than $4.5m for FY2013 will be provided. On the share issue tranche, XMH will issue 22m new shares at $0.396. Mech-Power Generator is engaged in the manufacturing, assembly, sale and servicing of diesel powered generator sets and has operations based in Singapore and Malaysia. The group manufactures and assembles its generator sets in its 1.4 hectares Malaysian plant located in Kulaijaya, Johor. OSKDMG upgrade to Buy, TP $0.55, based on 14x FY14F EPS, justified by 33%/25% FY14F/15F EPS growth. House note that full-year MPG profits are about 34% of XMH’s. In FY14F/15F, expect MPG to contribute $2.4m/5.1m to XMH’s core $14.4/15.0m (half-year contribution in FY14F). MPG’s margins are trending up due to high-value, higher-margin contracts recently signed with more on the horizon. This deal will allow XMH (operating now at full capacity) to immediately expand its operations via MPG’s Iskandar plant, bypassing workspace and foreign-worker constraints in Singapore. MPG will benefit from XMH’s strong balance sheet and access to financing to further grow its operations. Following this deal, XMH is still in a net-cash position and remains on the warpath for more acquisitions. House raise FY14F/15F estimates by 10%/25% as MPG’s profitability well exceeds prior acquisition assumptions.