XMH Holdings sold 15% of its diesel generator biz - why?
A mini PSIX for 7 PE?
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I sold BQF.SI recently at close to 8 PE because of concerns about whether they could continue to supply diesel gensets and management’s vague response to my question about expanding capacity.
On 15 September, the company announced that they had agreed to sell 14.8% of their diesel generator subsidiary to Mitsubishi Heavy Industries Engine System Asia for S$12,333,333.
The implications are:
This confirms that Mitsubishi is supplying them with the gensets, and that the relationship expanded because of their great work distributing Mitsubishi engines in the marine side of the business.
Although XMH needs M more than the other way around (because there would be no business without M), M agreed to pay ~ mid-teens earnings multiple for 15% of the business. This appears to be much higher than the value the market is giving to the business.
XMH explains in the announcement that it intends to work with Mitsubishi to improve production and expand capacity. This may explain why management could not tell me in concrete terms what their expansion plans were before the deal was announced.
Mitsubishi opened a plant in Johore in February 2025. The fact that they have done this deal just 6 months later tells you all you need to know about the demand for gensets in Johore, a fast growing market for data centres.
I repurchased my position when the share price fell after the announcement.
Some simple and conservative napkin math based on what Mitsubishi paid will support a a higher valuation. For example, 5x for marine, 10x for after sales (a more recurring business) and 10x for diesel gensets.
Mitsubishi is in a much better position than I am to know what the diesel generator business is worth - they know the customers and demand better than I do. Having said that, I think management got an incredible deal - they derisked the business somewhat and (I believe) got a price that exceeded their expectations.
My experience with the shareholder base and the stock also suggests that vibes alone will send this back to ATH. I’m hoping for 15% in two trading days. Let’s see…
This development was reported in a somewhat lazy way in the local press, failing to highlight (a) the data centre opportunity and (b) the fact that a major industrial was valued a local business as if it were PSIX. More intelligent reporting may drive a more violent rerate, but my sense is that management will not make an effort to overly promote the stock. A U-turn in Johor’s receptiveness to data centres remains a risk.
Disclaimer: I have a small position in XMH Holdings. This is not a recommendation to buy or sell stocks. These are my personal notes from research derived from sources that I believe to be reliable. There is no representation as to the accuracy or completeness of the research. The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in here are my own and are subject to change without notice.