CHINA AUTO sales have softened over the past 2 months after spillover effects from curbs on mortgage loans resulted in more costly auto loans.
Despite this, CIMB analyst Jonathan Ng is still upbeat about Armstrong’s plans to ramp up capacity.
CIMB maintained its ‘Outperform’ call on Armstrong with a target price of 56 cents yesterday after visiting its Guangzhou facilities early this week.
The stock rose 5.8% and closed at 45.5 cents on Fri, which translates to a 23% upside.
Armstrong is a leading foam and rubber components manufacturer specializing in insulation of noise, vibration and heat.
Sales of automotive components contributed 30.5% to its 1Q2010 revenues, and amounted to S$17 million.
Far north at the Jilin capital Changchun, which is China’s largest automobile manufacturing and R&D base, it plans to expand manufacturing floor space by more than 30% this year from 125,000 square feet to 168,000 square feet.
It also plans to set up an automotive technology centre there.
Down south at Guangdong capital Guangzhou, it plans to triple the manufacturing floor space from about 10,000 square feet to 30,000 square feet in the next three years, according to the analyst update.
The management is confident that its 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, which is very near Guangzhou.
FAW-VW (JV between First Auto and Volkswagen) held a signing ceremony on 11 Jun for the 500 million-euro project, which is scheduled to start operations in 2013, with initial production capacity for 300,000 vehicles.
Proximity to automakers is an important element of being their component supplier and Armstrong’s expansion trails the expansion of China’s dominant automakers.
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According to statistics from the Chongqing Foreign Trade and Economic Relations Commission, Chongqing is expected to produce 1.5 million units of cars and motorcycles, including 1.2 million 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 72,000 square feet to support Chongqing’s requirements. It may eventually set up a facility in Chongqing when business growth justifies this.
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