ARMSTRONG (LIM&TAN)

S$0.23-ARMS.SI

• Armstrong resumed its share buy back program yesterday having bought 300,000 shares at 23 cents each, representing 45% of total traded volume. The cumulative buy back for the latest mandate after yesterday’s buy back is 3,661,000 shares, representing 7.3% of the total allowable buy back of 50,220,735.

• With the general market treading water yesterday, the company’s buy back likely helped the stock rise 2.2%.

• Unlike Hi-P’s case where the company’s last share buy back program (from mid’10 till Feb’11) had clearly helped the stock outperform (rising from 50 cents to $1.24), Armstrong’s previous buy back programs were a mix bag.

• From mid-05 till mid-06 when the company was busy buying back shares, its stock price had more or less flat-lined during the period and when it resumed its buy back from late-07 till early-08, its stock price had fallen from the 40 cents level to mid-20 cents level. More recently when the company resumed its buy back program again in June’11 till Aug’11 after having ceased since early-08, its share price had initially benefitted a bit by rising from the 30 cents level in June’11 to 35 cents in July’11, but it has since fallen to a recent low of 21.5 cents before rebounding to 23 cents yesterday.

• Looking at its historical share price performance, it performs more closely to its bottom-line performance than the company’s share buy back program. For example, in 2007, the stock surged from its 10-20 cents range to a high of 48 cents in mid-07 as its profit surged from $13mln in 2006 to $21mln in 2007 and when profits fell back to the $14+mln range for 2008/2009, its stock price fell back to the 10-20 cents range before again breaking out in 2010 to retest its 2007 high of 48 cents when its profit rose to a new high of $27mln in 2010.

• With 2011 full year profit likely to fall in the $8-9mln range from its record of $27mln last year reflecting the fall-out from the Japanese earthquake, flooding in Thailand, cost pressures and volatile forex rates, there is a chance the stock may fall back to its 10-20 cents range.

• Except that its current price to book of 1.1x is already below its historical average of 1.55x (low of 0.6x and high of 2.5x) and despite lots of bad news (profit warnings and negative impact from the floods in Thailand) and weak results & outlook, its stock price has stopped falling.

• We like consensus have a Neutral rating on the stock.