XMH Holdings: A Contrarian Gem in the Industrial Sector with Surging EPS and Strategic Growth

XMH Holdings (SGX:BQF) has emerged as a compelling contrarian investment opportunity, offering robust earnings growth and strategic advantages in a sector often overlooked by investors. Despite a 109% year-over-year (YoY) surge in earnings per share (EPS) and a dividend yield of 4.49%, the stock trades at a P/E ratio of just 6.84, significantly below its peers and the broader industrial sector. This article explores why XMH represents a rare chance to buy a high-quality growth stock at a discount, driven by underappreciated catalysts such as regional infrastructure demand and a strong balance sheet.

The EPS Surge: A Signal of Underappreciated Strength

XMH's Q2 2025 results revealed a TTM EPS of SGD 0.23, a staggering 109% increase from the previous year. This growth was fueled by strong demand for its marine and industrial diesel engine solutions in key markets like Indonesia and Vietnam, where over 40% of its revenue is generated. The company's focus on after-sales services—including spare parts, maintenance, and customized power solutions—has created a recurring revenue stream, shielding it from cyclical volatility.

Undervalued Relative to Peers: A Contrarian Bargain

XMH's valuation stands out when compared to its competitors. Let's analyze the key metrics:

• XMH (6.84x): Well below the industry average P/E of 14.3x and peers like HG Metal (11.5x) and Sin Heng (11.1x). Even Hafary Holdings (5.7x) and Asia Enterprises (1.3x), which trade at extreme discounts, fail to match XMH's earnings growth trajectory.
• Price-to-Free Cash Flow (P/FCF): At 12.44x, XMH's FCF yield of 8.04% ranks among the highest in its sector, reflecting strong cash generation.
• Dividend Attractiveness: With a payout ratio of just 15%, XMH has ample room to grow its dividend, currently yielding 4.49%—a 133% increase YoY.

Strategic Advantages: Why XMH's Growth Is Sustainable

1. Geographic Diversification: XMH's focus on Southeast Asia positions it to capitalize on rising infrastructure spending, particularly in Indonesia's port modernization projects and Vietnam's energy sector. These markets are less exposed to global economic headwinds.
2. Competitive Moat: Its after-sales service network and project-specific expertise create a barrier to entry. While competitors like Hafary and Asia Enterprises focus on distribution, XMH's ability to design tailored power solutions gives it a recurring revenue edge.
3. Balance Sheet Strength: With a debt-to-equity ratio of 0.40 and SGD 31.95 million in cash, XMH is financially agile to invest in growth or return capital to shareholders.

Risks and Considerations

• Global Competitor Threats: Brands like Yanmar and Perkins, which XMH distributes, could undercut margins. However, XMH's local partnerships and service network mitigate this risk.
• Cyclical Sensitivity: The industrial sector is tied to economic cycles. A downturn in Southeast Asia could pressure demand. Yet XMH's after-sales business provides a stabilizing factor.
• Valuation Expansion Lag: Despite strong fundamentals, the market has yet to fully recognize XMH's value, offering a contrarian entry point.

Conclusion: A Buy with Upside Potential

XMH Holdings checks all the boxes for a contrarian investment: strong earnings growth, undervaluation relative to peers, and sector-specific tailwinds. With a P/E of 6.84 and a 22.19% earnings yield, the stock is priced for pessimism. Meanwhile, its dividend growth and cash flow suggest it could reward investors through both capital appreciation and income.

Actionable Recommendation: Consider initiating a long position in XMH with a target price of SGD 0.35–0.40 over the next 12 months. Monitor regional infrastructure contracts and dividend announcements as key catalysts. For risk management, set a stop-loss at 15% below the entry price.

In a market obsessed with high-flying tech stocks, XMH exemplifies the contrarian philosophy of buying what others neglect. Its fundamentals are clear, its valuation compelling, and its growth story underappreciated. This is a stock to watch—and own—in 2025.