Armstrong Industrial: Recovery on track
(BUY, S$0.315, TP S$0.37)
Results in line; maintain BUY. Armstrong’s 4Q earnings came in at S$1.9m (-69.0% YoY) on the back of sales of S$49.2m (+25.7%). Full year core PATMI fell by 51.4% YoY to S$12.1m, largely attributable to the reduction in sales in hard disk drive (HDD) business (-10.3% YoY) as a result of Thai flood. This was partly offset by strong growth in the automotive business (+8.0% YoY), thanks to the robust market in China. Going forward, we expect the group to report an operating profit of S$13.7m for FY12 underpinned by a recovery in the HDD business and trong growth momentum in the automotive business. There is also a possibility of a write-back in mark-to-market forex losses.
Reiterate BUY with an unchanged TP of S$0.37 base on +1 SD (14x forward P/E).
Insurance claim settled. Armstrong is one of the very few companies which manage to reach an early agreement with the insurance company with regards to its Thai flood damage claim. The final settlement amounted to S$7.1m, higher than its impairment charges of S$6.8m. The claim arrived earlier than our expectation with S$4.7m already booked in FY11. Moving on, we expect the remaining amount along with a possible write back of mark-to-market forex losses to boost the group‘s FY12 reported earnings to S$17.7m.
Automotive to underpin recovery. Despite the Thai flood disruption, Armstrong’s automotive business, which accounted for 35% of FY11 revenue, managed to grow by 8.0% YoY. According to J.D. Power and Associates, China auto sales are expected to grow by 11% this year. With eight geographically well distributed plants to serve key customers such as VM, Toyota and BMW, we believe Armstrong is capable of capturing this opportunity.
Source/Extract/Excerpts/来源/转贴/摘录: DMG & Partners Research