AMSTRONG, dmg maintain BUY with target price $0.17
-Affected by forex losses. 3Q08 revenue was almost flat at S$48.5m
while
net earnings fell 26.7% to S$2.4m mainly due to a S$2.6m mark-to-market
derivative loss that in turn resulted from unfavourable FX movements.
Additionally, Armstrong¡¯s operating profit was also hit due to the
high raw
materials costs which have not yet abated while increased admin
expenses
attributed to the new factories in Wuhan (China) and Thailand was also
a
factor.
-Dragged down by translation losses. Turnover and net profit would have
stood at S$52.1m and S$3.8m respectively should the S$ stay stable
against
the various Asian currencies and the US$ ¨C this in turn equates to a
6% and
19% gain in top and bottomline in 3Q08. For 9M08, sales and net
earnings
would actually have been higher by 13% and 41% respectively.
-Consumer Electronics, the star performer. Among the company¡¯s various
business segments, sales from Consumer Electronics increased 8% to
S$18m
and accounted for 37.1% of 3Q08 revenue. Growth in Data Storage, which
now
mainly consists of Armstrong¡¯s higher-margined rubber business, inched
up
2% to S$12.4m.
-Due to a drop in automotive demand from the US, however, sales from
Armstrong¡¯s Automotive segment fell 6% to S$11.2m. Additionally, the
company¡¯s Office Automation business also continued to contract as
sales
fell 19% to S$5.9m in 3Q08, inline with Armstrong¡¯s focus on margin
enhancement and resource management strategy.

BEAUTY CHINA, philip downgrade to HOLD with target price $0.42
-Downgrade to HOLD. . In view of the Group¡¯s recent half year
financial
results and the current economic situation, we remain conservative and
have
further revised our fair value estimate to S$0.42. We have changed our
valuation method and pegged 1x to the Group¡¯s FY2008 book value per
share,
translating to 7.69% upside. Despite the Management¡¯s assurance, we
remain
concerned about the Group¡¯s strategy in extending full credit terms to
their distributors, which has in turn increased their exposure to
credit
risk, especially in the current credit climate.
-3QFY2008 and 9MFY2008 financial results. Beauty China Holdings Limited
(¡°Beauty China¡±) reported 31.69% (year-on-year) growth in revenue
from HKD
421.30 million in 9MFY2007 to HKD 554.79 million 9MFY2008. Net profit,
on
the other hand, grew by 15.22% (year-on-year) from HKD 122.26 million
in
9MFY2007 to HKD 140.87 million 9MFY2008. On a quarterly basis, revenue
grew
by 30.66% (yearon- year) from HKD 187.95 million in 3QFY2007 to HKD
245.58
million in 3QFY2008. In addition, net profit grew by 18.56%
(year-on-year)
from HKD 52.23 million in 3QFY2007 to HKD 61.92 million in 3QFY2008.
The
Group attributes the growth to the increase in their point-of-sales in
the
PRC.
-Profit Margins. The Group¡¯s gross profit margin continued to improve,
by
1.28ppts from 62.55% in 9MFY2007 to 63.83% in 9MFY2008; and by 2.31ppts
from 62.28% in 3QFY2007 to 64.59% in 3QFY2008. However, as anticipated,
net
profit margin continued to fall in 9MFY2008 and 3QFY2008, due to the
increase in advertising and promotions. Net profit margin decreased by
3.63ppts from 29.02% in 9MFY2007 to 25.39% in 9MFY2008; and by 2.57ppts
from 27.79% in 3QFY2007 to 25.22% in 3QFY2008.
-Full credit terms extended to distributors. The Group has full credit
terms extended to their distributors, in aid to ensure business
continuity
between both parties and revenue growth. However, in the current global
credit climate and concerns of solvency and liquidity issues, we are
concern about the Group¡¯s strategy which has increased their exposure
to
credit risk. The Management has assured that they have had
long-standing
relationships with their distributors and to date and they have not
experienced any defaults in payment as yet.
-Estimates. Based on the Group¡¯s recent financial results and the
global
economic situation, we have revised our revenue growth forecast to
26.51%
in FY2008, 22.74% in FY2009 and 5.82% in FY2010. These were derived
based
on the Group¡¯s possible production utilization rate over the years. We
also
believe that the Group will still be able to continue managing their
gross
profit margins; hence we have maintained our forecasted gross profit
margins of 63.89% in FY2008, 64.55% in FY2009 and 65.55% in FY2010. In
addition, with the Group¡¯s continuous focus in the advertising and
promotion of their Charming Lady brand, we have maintained our
forecasts
for net profit margins of 24.45% in FY2008, 23.55% in FY2009 and 22.21%
in
FY2010.