OUTPERFORM Maintained Armstrong Industrial S$0.43 Target: S$0.56

Forging ahead with auto business

Technology ComponentsMkt.Cap: S$221m/US$159m

SINGAPORE

ARMS SP / ARMS.SI Jonathan Ng +65 6210 8650 – jonathan.ng@cimb.com

Auto cruising

Business still brisk; maintain Outperform and target price.

Guangzhou plant earlier this week and came away positive on the progress of its

automotive components business in China. We leave our FY10-12 profit forecasts

unchanged, as well as our target price of S$0.555, still based on 9x CY11 P/E, at a

slight discount to its 5-year historical average to be conservative. We see stock

catalysts from: 1) continuous healthy quarterly earnings; 2) positive newsflow on the

HDD and automotive sectors; and 3) possible pleasant surprises in dividend

payments.We visited Armstrong’s

To triple Guangzhou facilities in three years.

Guangzhou plant will continue to do well, especially with recent news that Volkswagen

will be setting up a new assembly factory in Nanhai district, Foshan city. On 11 Jun,

FAW-VW (JV between First Auto and Volkswagen) held a signing ceremony for the

project, which would involve a total investment of 500m euros, in Foshan, Guangdong

Province, southern China. The new factory is scheduled to start operations in 2013,

with initial production capacity for 300k vehicles. Armstrong also plans to triple the

manufacturing floor space of its Guangzhou facilities from about 10k sf to 30k sf in the

next three years, reflecting its optimism on its southern China business.Management is confident that its

Plans to expand capacity and technology in Changchun.

of the overall auto industry in China, Armstrong will continue to invest in R&D to widen

its product offerings. It plans to set up an automotive technology centre in its

Changchun plant to spearhead auto components development in China, and will also

expand its manufacturing floor space by more than 30% this year from 125k sf to 168k

sf. The Changchun plant has secured a second car-seat project, for which mass

production could commence in 2011.In a bid to charge ahead

Moving westwards.

Tianjin), southern China (Guangzhou), and central (Wuhan), Armstrong is eyeing

western China, which is another automotive-manufacturing hub. According to statistics

from the Chongqing Foreign Trade and Economic Relations Commission, Chongqing

is expected to produce 1.5m units of cars and motorcycles, including 1.2m passenger

cars in 2010, accounting for about 15% of China’s total output. Armstrong plans to

start a representative office in Chongqing, and will be doubling its Wuhan plant this

year to 72k sf to support Chongqing’s requirements. However, it may eventually set up

a facility in Chongqing when business growth justifies this.Having established facilities in northern China (Changchun and

Limited impact from recent production shut-down at Honda plant.

said the recent production shut-down caused by workers’ strikes at Honda’s car plant

in Guangzhou will only hurt marginally as Armstrong only supplies Rmb700k-850k of

products a month to Honda through air-condition suppliers. This represents less than

5% of its auto component sales in China.Management

No further comments on major shareholder’s discussions with third party.

discussions are reportedly preliminary and non-binding, and there is no certainty that

any proposal, offer or transaction will materialise. No further details were disclosed.The

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