Towards Financial Freedom
Armstrong - Accept The Offer
Armstrong's 2QFY13 results came in below expectations, with PATAMI of SGD0.4m (-83.2% y-o-y) on the back of SGD56.8m in revenue (+3.2% y-o-y). We believe that the privatisation offer for the company, at SGD0.4/share, is fair as it represents 19.0x FY13E P/E and 1.9x FY13E P/BV. As such, we opine that investors should accept the offer.
- Revenue stable but profits declined. Despite the revenue contraction of various business segments - ie data storage, consumer electronic and office automation - Armstrong's automotive business continued to drive the group with a 20.7% y-o-y revenue growth. As a result, revenue increased marginally by 3.2% y-o-y to SGD56.8m. In line with our expectation, the weakening of JPY resulted in a higher GP margin of 21.8% (+2 ppts y-o-y) as the group saved costs in purchasing raw materials from Japan. However, net profit still declined, due to: i) forex losses, ii) higher administrative expenses, as well as iii) high tax expenses.
- Privatisation offer fair. Armstrong's founder and largest shareholder Mr Ong Peng Koon and his family, who collectively own 46.5% of Armstrong, had together with the company's supplier INOAC (a Japanese rubber and plastic supplier) offered to delist it at an offer price of SGD0.4/share. Affected by weakening demand in the hard disk drive (HDD) industry as well as rising production costs, Armstrong has performed poorly in the past two years, with its recurring net profit registering y-o-y declines of 58.9% in FY11 and 32.4% in FY12. The offer price came in attractive at 19.0x FY13E P/E and 1.9x FY13E P/BV, much higher than the market valuation of 12.7x FY13 P/E and 0.5x FY13 P/BV of its Singapore-listed peer Broadway Industrial (NEUTRAL, BWAY SP, TP:SGD0.30). While Armstrong's automotive business remains as its sole pillar of growth, we see no strong growth drivers in propelling the group's performance going forward. Therefore, we opine that investors should accept the takeover offer as the deal enables public shareholders to realise their investment.
Source: OSK
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
