Armstrong's  3Q12  results  came  in  largely  in  line  with  our  forecasts  with  S$2.8m  PATMI  (+2227%  YoY)  on  the  back  of  S$56.8m  in  sales  (+1.3%  YoY).  ,  as  the  group recovered from the impact of Thai flood a year ago. Excluding the one-off  items such as forex gain and insurance claims, 9MFY12 core PATMI came in at  approximately S$4.8m, accounting for only 48% of our forecasts. We trimmed our  FY12  core  earnings  estimates  by  32%  to  S$6.9m.  Going  forward,  the  possible  strong  rebound  in  4Q  is  not  likely  to  happen  with  its  HDD  business  expected  to  remain  subdued  over  the  next  two  quarters.  Nonetheless,  the  group  has  transformed  into  a  diversified  foam  and  rubber  component  supplier  with  1732  customers  across  different  industry.  Reiterate  NEUTRAL  with  a  new  TP  of  S$0.27,  based  on  11.5x  blended  FY12/FY13  core  earnings  (5-yr  forward  P/E  historical average).  

HDD  segment  to  remain  subdue.  For 9MFY12, HDD business only accounted  for  20%  of  the  group's  revenue.  Within  this  segment,  Seagate  and  Western  Digital  (WD)  took  up  60%  and  32%  respectively.  As  the  near-term  outlook  provided  by  Seagate  and  WD  are  not  encouraging,  we  now  expect  the  group's  HDD business to remain subdued until 1QFY13.  

Sino-Japan  tension  may  benefit.  Armstrong  now  services  1732  customers  across different industries. As expected, the group successfully added reputable  names such as BMW and Mercedes for its automotive business and Dyson for its  consumer  electronic  business.  We  are  also  positive  towards  the  Armstrong's  automotive  business  in  China  following  the  Sino-Japan  tension  as  the  group  mainly services the European, US and local auto OEMs there.

Source: OSK