XMH: First share buyback in 4 years, business upturn coming?

Last week, XMH Holdings has been buying back its shares, the first time in nearly four years.

	No. of shares bought	Buy price	% of traded vol.
6 July	-	-	-
5 July	100,000	23c	89%
4 July	80,000	22.8c	100%
3 July	186,100	22.5c	100%
2 July	159,900	22.4c	100%

XMH -- which is 18.8% owned by Koh Boon Hwee-backed private equity fund Credence Capital -- bought back 526,000 shares (see table).

They accounted for virtually all of the traded volume on those days.

XMH has been a thinly traded stock, languishing as its business been impacted by the downturn in the offshore marine and coal industries, among others.

XMH was chiefly a distributor of marine diesel engines until it acquired in 2013-2014:

1) Mech-Power Generator, which assembles and installs standby generator sets; and
2) Z-Power Automation, which designs and manufactures marine switchboards, remote control distribution system and marine automation products.

Credence Capital invested in XMH in 2013 at $1.11 and $1.26 (adjusted for a 2016 share consolidation).

XMH's FY2018 (ended April 2018) saw a net loss of $3.5 million, the second consecutive annual loss.

But could XMH have bottomed out? The share buybacks appear to signal that, as well as reflect the big discount that the stock trades vis-a-vis its 55.4-cent net asset value.

The NAV, in turn, is based on the historical cost of the company's Tuas HQ building, whose market value is substantially higher at around S$80 million, according to an external valuation.

S$’000	FY18	FY17	Change (%)
Revenue	72,886	90,151	(19.2)
Gross profit	17,814	21,794	(18.3)
Gross profit margin	24.4%	24.2%	0.2pp
Net loss attributable to shareholders	(3,469)	(1,071)	N.M.

In addition, the management sounded upbeat, citing:

♦ An increase in customer enquiries, and S$30 million in orders secured in the past four months from several sectors such as utilities, data centres, marine vessels and industrials.

The majority of these orders is expected to be fulfilled in FY19. XMH did not disclose its total orderbook, saying that would be available in its upcoming annual report.

♦ A jump in inventories from S$26.9 million as at end-Jan 2018 to S$33.3 million as at end-April 2018.

♦ The setting up of branches and employment of new staff in Indonesia to capture a potential return of business in its engine distribution segment.

Elvin Tan, executive chairman & CEO, XMH Holdings: He owns 40.3% of XMH. NextInsight file photo"We believe that there is a gradual pickup in industry sentiment, which is reflected in our recent order wins," said executive chairman Elvin Tan.

"Overall, opportunities are beginning to present themselves in new and existing markets for the Group and we will put our best foot forward to convert these opportunities into tangible results.”

For an idea of the marine engines that XMH distributes, watch this video -->

XMH: First share buyback in 4 years, business upturn coming?

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