XMH refuses to shell out cash for acquisitions

It's already enjoying 180% revenue jump.

Broker analyst DMG reported a surprising surge for XMH Holdings as the bottom line jumped by 146% allowing it to buy back shares, pushing the EPS higher to 155%.

Here's more from DMG:

XMH reported an extremely strong 2Q13 with EPS up 155% from a year ago. This was both the result of a much stronger order book and a low-base effect. Earnings quality was very good with no exceptionals this quarter.

Having met 57% of our full-year forecast, we raise our estimates by 6%-7% and maintain our Buy call with a TP of $0.260.

Revenue up 180% YoY to $26.7m. The surge in the topline came from both a stronger order book, and a lower base as customers delayed taking delivery of goods due to economic uncertainty a year ago.

After last year’s sputters due to the Eurozone crisis in late 2011, business is definitely back with the last three quarters registering well-above-average revenue.

Lower margin within expectations. The gross margin slipped to 22.1% from 24.8% a year ago due to lower margins in Distribution segment, in part due to the strong Yen. We are maintaining our FY13F expectation of 24.5% margin.

Flowing to the bottom with 155% EPS jump. The bottom line jumped 146% to $3.6m, while EPS rose by a higher 155% to $0.093 as the company bought back shares over the last year.

Management is not willing to pay high multiples for acquisitions, and their ability to sit on a very large pile of cash over the last two years attests to their discipline. We also note that major organic growth is likely only in about two years’ time – IPO proceeds for a new factory are yet unutilised, and factoring in construction time we expect contributions only in FY15F.

High quality earnings. Raise estimates by 6-7%. Maintain Buy with TP of $0.260. This quarter's performance was very operationally-representative - there were no one-offs like forfeited customer deposits nor large exchange effects.

We maintain our Buy call with a TP of $0.260, based on 5x core P/E plus net cash per share, and dividend estimate of 1.3¢ per share for a 6.8% yield.

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