1QFY15tableConfident of a rebound in Indonesia, OSK-DMG is forecasting that XMH will achieve $143 million revenue and $15.3 million net profit for the current FY.FOR SOME 6-9 months leading to the recent Indonesian Presidential elections, orders from XMH Holdings' customers in Indonesia dried up, while those whose goods had arrived at XMH deferred taking delivery.

Finally, on July 22, the winner of the election was declared -- Joko Widodo.

XMH's results for its 1QFY15 ended July 2014 thus did not capture any recovery in its Indonesian business.

Its inventory for Indonesian customers piled up at its warehouse in Sungei Kadut and accounted for the bulk of the S$23.7 million inventory on the balance sheet for 1QFY15. 

In comparison, a year earlier at end-July 2013, its inventory stood at S$16.6 million.

Al_Cliff7.14L-R: Alphonsus Chia, deputy CEO of XMH Holdings, with Cliff Loke, MD of Mech-Power, which became a 100% subsidiary of XMH in Sept 2013.
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With a gradual return to normalcy in business after the elections, XMH's customers in Indonesia have begun taking delivery, or placing orders, in 2Q (Aug-Oct 2014).

"We think the worst is over for XMH's business in Indonesia," said Alphonsus Chia, the deputy CEO of XMH during a 1Q results briefing last week.

Revenues in the near term will be boosted by customers collecting the engines they had deferred picking up, said Mr Chia. 

The flow of new orders is picking up but may be described as "sluggish".

In the meantime, what has contributed substantially to XMH's bottomline is Mech-Power, the 100% subsidiary which was acquired in Sept 2013.

With sales of its standby gen-sets mainly in Singapore, Mech-Power contributed S$19.1 million out of the S$25.8 million group revenue in 1Q.

The remaining $6.7 million of group revenue came from XMH's core business -- chiefly as a diesel engine and propulsion solutions provider to the marine industry -- which was a sharp drop from the $21.4 million recorded in 1QFY14.

Jessie_Koh_6.14Jessie Koh, finance director of XMH Holdings.
NextInsight file photo
As a group, XMH reported a 20.5% revenue growth in 1Q, 24.8% growth in gross profit -- but a 47.3% fall in net profit after factoring in a 76.9% jump in operating expenses with the consolidation of Mech-Power.

Going forward, the outlook at Mech-Power continues to be strong and "way above what we expected when we made the acquisition," said Mr Chia.

Back then, Mech Power was clocking annual revenue of the order of about S$28 million. 

What's driving Mech Power's growth is the supply of gen-sets to new data centres that are being set up in Singapore, which accounts for about half of its revenue. 

In the meantime, XMH's efforts at penetrating new markets for its core business are paying off.

In April 2014, XMH made a breakthrough in Vietnam with contract wins for more than 24 units of Mitsubishi marine engines. Another 10 units are expected to be secured in the next two months.

Acquisition No.2: Z-Power Automation

zpower8.14XMH has said that Z-Power's revenue in FY13 was S$21.4 million. Photo: CompanyXMH is close to completing its due diligence on Z-Power Automation which it has signed a MOU to acquire 80% of for S$13.2 million in cash.  

If all goes well, Z-Power's business results will be consolidated into XMH's from Dec 2014 or Jan 2015.

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.

These are products that XMH can cross-sell to its existing customer base while it can also cross-sell its diesel engine and propulsion systems to Z-Power's customers.

The acquisition of Z-Power enlarges XMH's geographical reach as some of Z-Power's customers are located in markets that XMH currently does not derive major revenue from, such as China and Middle East, said Alphonsus Chia, deputy CEO of XMH.

He said that the gross margins of Z-Power are similar to XMH's. 

While XMH has not revealed the profitability of Z-Power, OSK-DMG has guesstimated it was $1.73 million on revenue of S$21.4 million in FY13. (See: 
XMH, CENTURION: What analysts now say)

XMH's Powerpoint presentation slides are available on the SGX website.

For more, read: XMH HOLDINGS: To Acquire 80% Of Z-Power For S$13.2 Million

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