Inline with expectations. 4Q08 revenue fell 15.7% to S$41.9m while net profit decreased 75.9% to S$1.5m although it would have slightly exceeded our S$3.2m forecast should the S$1.9m FX loss be excluded. Save for Armstrong’s Consumer Electronics business, all three other segments had posted negative growth in 4Q08 owing to the unabated economic crisis.

Effective cash management. Notwithstanding the deteriorating macro picture, Armstrong’s balance sheet remained relatively healthy although slower sales had translated to a 39% jump in inventories in FY08. However, its trade receivables and payables were efficiently managed as Armstrong continued to generate positive free cash flows even during the protracted downturn in 4Q08.

Negative bottomline growth anticipated in FY09. With Armstrong continuing to leverage on the HDD theme and with several of its major customers expected to report lower profitability for the current year, we reckon that Armstrong would not fare any differently. Nevertheless, we continue to like the company’s exposure to the rubber business (which commands higher margins) and we also gather that more of Armstrong’s HDD customers are switching from the usage of plastic to rubber.

FX issues – our main concern. As mentioned in our previous report, we had highlighted currency fluctuations as one of our key concerns. The strengthening of the JPY and the US$ against the S$ during 4Q08 had impacted Armstrong negatively. Should these trends remain, we believe it is inevitable that the company’s bottomline would continue to be affected.

Valuation & Recommendation. We continue to like Armstrong for its ability to stay operationally healthy despite the weak macro outlook. Currently priced at 5.3x FY09 P/E and assuming it trades up to its 2-yr historical average of 7x, we cut our target price to S$0.145 from S$0.17. Prospective dividend yield of 9.1% is also reasonable – maintain BUY.