Maintain BUY, TP=$0.57 (from $0.4 , pegged at 10xFY11 EPS. KE Research upgrades FY10-11 forecasts by 11-12% on the back of a more optimistic outlook on margins. We recently visited Armstrong’s automotive components factory in Guangdong, which is one of its seven factories in China and will triple the capacity in the next 3 years. Management remains very positive on the China automotive growth story backed by its customers’ investment plans such as Volkswagen and BMW.
Armstrong’s automotive sector contributes +30% of revenue. We see the impact of hiking wages limited for now, but there could be an impact if work stoppages affecting main customers. A potential acquiring offer from a third party is still preliminary and non-binding, but we see Armstrong worth the kind of deal multiples like Unisteel sold to KKR in 2008 with 16.5x PE.
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