Excerpts from CIMB Squawk Box this afternoon...
Photo: CIMB-GK

This was the scene at the PC Show 2010 yesterday at Suntec City.

Early birds (including us, though we were there for the pretty faces first then cool gadgets) queuing to gain entry into the exhibition hall is good news to investors; they prove that demand for electronics products remains strong despite the macro headwinds.

This is in turn means business for component suppliers remains good.

Great Singapore Sale on – don’t wait too long

With hard disk drives still the dominant storage medium for PCs, their component suppliers such as Armstrong (OUTPERFORM, TP S$0.555) and Broadway Industrial (OUTPERFORM, TP S$1.67) stands to benefit.

Armstrong rose 15.4% since we upgraded our TP to S$0.555 (from S$0.48) on the back of 13-20% earnings upgrade for FY10-FY12.

Over the same period, Broadway gained just 2.9%, making it a promising laggard.

No more stocks (literally)

At 7.45am this morning, Armstrong requested for a Trading Halt and subsequently announced at 9.39am that a major shareholder has been approached by a third party expressing interest to consider a possible offer for the shares or the business of the Company. The expression of interest is not surprisingly preliminary (that’s how they all start, isn’t it?).

Trading resumes at 2.00pm this afternoon.

IF this does translate into a takeover of Armstrong and delisting, we would literally be out of stocks as the only remaining decent market cap HDD component player would dwindle to just one – Broadway.

So, get some Broadway action

So, should we buy Broadway? The broker in me says yes since we will get some commissions. Fundamentals however make a stronger case with the stock offering 55% upside to our TP of S$1.67, pegged at 8x CY11 P/E, its 5-years historical trading band. With just 23% upside remaining on Armstrong, a switch into Broadway looks logical.
Source: CIMB-GK

What does the trader in me say? History has shown that punters will be hunting for the next potential M&A target in light of Armstrong’s announcement. That could benefit Broadway’s share price.

Market forces however could be in the drivers’ seat eventually as
industry dynamics change with so many component suppliers being taken over or privatised, leaving the consolidation trend inevitable? Well, on takeovers, your guess is as good as mine but comparison data gleaned from Bloomberg makes an interesting read (see table on the right)

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