Broadway Industrial Group Ltd - CIMB Research 2018-01-09: Exploring Opportunities To Unlock Shareholder Value

Broadway Industrial Group Ltd - CIMB Research 2018-01-09: Exploring Opportunities To Unlock Shareholder Value BROADWAY INDUSTRIAL GROUP LTD B69.SI

Broadway Industrial Group Ltd - Exploring Opportunities To Unlock Shareholder Value

  • Broadway Industrial Group Limited (Broadway) is a manufacturer of actuator arms and related assembled parts for hard disk drives (HDD).
  • In FY16, Broadway disposed two of its three main businesses, namely, its foam plastics solutions and flow control devices businesses.
  • Its FY16 annual report stated it will explore new opportunities to unlock shareholder value.
  • As at end-Sep 2017, Broadway’s BVPS was S$0.213. Based on the closing price of S$0.124 on 5 Jan 2018 Broadway was trading at an end-Sep 2017 P/BV of 0.58x.



Company Description 

  • Founded in 1969 and listed on the SGX Mainboard in 1994, Broadway Industrial Group Limited (Broadway) provides high precision machining and sub-assembly processes in a cleanroom environment for original equipment manufacturing (OEM) products in the data storage, automotive and telecommunications industries
  • Broadway is currently a key manufacturer of actuator arms and related assembled parts for the global hard disk drive (HDD) industry with manufacturing facilities in China and Thailand, employing more than 4,000 people worldwide.


What has changed? 

  • In FY16, Broadway Industrial Group Limited (Broadway) disposed two of its three main businesses, namely, its foam plastics solutions and flow control devices businesses to an American private equity fund for total consideration of S$150m. The sale was completed on 30 Dec 2016. Following the disposal, the group’s key business is its HDD business.
  • In FY16, the HDD business faced difficult and challenging conditions. The group’s revenue from the HDD operations dropped 7.2% yoy from S$402.6m in FY15 to S$373.7m in FY16, mainly due to the decreasing global HDD annual shipment volume trend.
  • The group’s FY16 results were also negatively affected by the continued restructuring costs for the HDD business arising from consolidation of operations, redundancy, write-off of property, plant and equipment, as well as inventories.
  • Given the tough HDD operating environment, with the company projecting continued decline in HDD shipment volumes, the Board of Directors impaired the company’s carrying value of its investment in the subsidiary holding the HDD business by S$26.0m in FY16.


Outlook

  • Trendfocus reported that the shipment volume for 2016 amounted to 424.1m units, a 9.5% decrease compared to 2015. Trendfocus forecasts that the HDD total addressable market in 2017 shrank to 414.4m units. Its longer-term forecast for 2017-2021 is average shipment volume decline of 4.1% p.a. based on the expected erosion in PC shipment volumes and increasing solid-state drive (SSD) usage. As such, Broadway expects the HDD sector to remain challenging going forward.
  • Management noted that although the HDD shipment volume declined in 2016, it was still at a very high level of more than 400m units p.a. Broadway plans to continue to optimise its operations, improve efficiency and productivity through further consolidation of operations, cost optimisation and right-sizing.
  • In its FY16 annual report, the group highlighted that it will also continue to explore new opportunities to further unlock shareholder’ value.


9M17 financials 

  • 9M17 revenue grew 2.6% yoy, while net profit was S$0.6m (vs. net loss of S$20.3m in 9M16). 3Q17 revenue grew 14.0% yoy to S$105.2m (vs. S$92.2m in 3Q16). Net profit in 3Q17 was S$0.4m (3Q16: net loss of S$9.2m).
  • As at end-Sep 2017, Broadway was in a slight net cash position, with positive operating cash flow and free cash flow. 
  • For 3Q17 and 9M17, operating cash flow was S$17.0m and S$9.5m, respectively, while free cash flow was S$16.6m and S$3.9m, respectively.


Historical valuations 

  • As at end-Sep 2017, Broadway’s book value per share was S$0.213. Based on the closing share price of S$0.124 on 5 Jan 2018, Broadway was trading at a historical end Sep 2017 P/BV of 0.58x. 
  • Broadway did not pay any dividends for FY13-15. For FY16, it paid a S$0.085 DPS from the proceeds of the disposal of its two businesses.
  • In 2017, Broadway’s share price declined by 34.2%. Broadway resumed its share buy-back programme in 2017. Before 2017, the last share repurchase by the company was carried out on 26 Mar 2015.



NOT RATED
Target Price: N/A


William TNG CFA CIMB Research | http://research.itradecimb.com/ 2018-01-09
CIMB Research SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998


* This Eyes On the Ground report represents a preliminary assessment of the subject company, and does not represent initiation into CIMB's coverage universe. It does not carry investment ratings and CIMB does not commit to regular updates on an ongoing basis.



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