The significance of the acquisition is not lost on investors who have noted how an earlier acquisition, Mech Power, has proved to be a saviour for XMH, whose core business was over-dependent on the Indonesian market for its marine engines and engine propulsion systems.
Mech-Power, which produces standby generators for data centres and other buildings, has delivered the bulk of the profits recorded by the group since it was 100% acquired in Sept 2013.
Z-Power will be earnings-accretive too, according to XMH. Z-Power reported $1.9 million net profit on revenue of S$21.4 million in calendar year 2013. (See: announcement)
Z-Power specializes in the assembly, retrofitting and manufacturing of type-tested switchboards, distribution panels, console, control systems, switchgears and other integrated marine automation products. (For more, see: XMH HOLDINGS: To acquire 80% of Z-Power for S$13.2 million)
The two acquisitions reflect XMH's strategy of using its large cash pile -- built up in good times -- "to buy profits".
Its IPO in 2011 and a subsequent share placement raised a total of about $29 million largely applied to developing a 7-storey industrial building-cum-HQ in Tuas, which will be completed in 2015.
As at end-Oct 2014, XMH had $23.9 million cash and $3.9 million in borrowings.
The cash pile is set to fall as XMH will dig into it to fully pay in cash the $12.8 million purchase consideration of Z-Power (The amount has been lowered from the original $13.2 million and terms of payment changed).
In the recent 2Q (ended Oct 2014), XMH reported net profit attributable to shareholders of $711,000 (down 64.9% year-on-year).
And for the first six months of its current FY, net profit came up to $2.1 million (down 54.9% y-o-y). Some key matters, as discussed at the 2Q results briefing this week:
Recent story: NRA lowers fair value of XMH to 31 c; OSK-DMG keeps it at 42 c
XMH HOLDINGS is finalising its acquisition of 80% of Z-Power Automation and expects to book the latter's financial figures starting in just a month or two (Jan or Feb next year).