NRA Capital: Kevin Scully Blog

Broadway delivers a solid set of Q2-2010 numbers - net profit higher by 34.9% - to pay interim dividend of 2 cents Thursday, 29 July, 2010 7:59 AM Posted by Kevin Scully Broadway was included in my Stock Picks in July 2009 when its share price was S$0.295. I have retained it in the portfolio given the strength of its earnings growth and raised my price target after the Q1-2010 results. There are no major surprises in its Q2-2010 results. The key points are summarised below: a) revenue rose 1.7% to S$141.7mn b) net profit rose 34.9% to S$10.33mn c) other expenses rose sharply to S$2.5mn - mainly forex loss d) company has declared an interim dividend of 2 cents with books close on 27 Aug 2010 and payment on Sept 8, 2010. Review and outlook a) HDD revenues fell 11.4% in Q2-2010 from Q2-2009. But Q2-2009 was an unusually high base. Q2 is normally the weakes HDD quarter and Broadway's Q2 was slightly below Q1-2010. b) other business grew with non-HDD revenue more than double 2009 while foam plastics was higher by 23-24%. c) the group suffered an unrealised forex loss of S$2.9mn from RMB/US$ fluctuations - excluding this its net profit would have been S$13.2mn a rise of 65% over the same period in 2009. d) Trend focus is looking at annual demand for HDD rising by 12.2% in 2010 e) Broadway has acquired new machines and increased capacity by 7.5% - ontrack with its planned expansion of 20% in capcity in 2010. f) an interim dividend of 2 cents has been declared which is equal to the full dividend for 2009 - assuming 4 cents dividend for 2010 would give a runnin yield of 3.2%. For more on my views and whether Broadway remains in my Stocks or if I am changing my price target - check my Stock Picks section.

Broadway delivers a solid set of Q2-2010 numbers - net profit higher by 34.9% - to pay interim dividend of 2 cents
Thursday, 29 July, 2010 7:59 AM
Posted by Kevin Scully

Broadway was included in my Stock Picks in July 2009 when its share price was S$0.295. I have retained it in the portfolio given the strength of its earnings growth and raised my price target after the Q1-2010 results.

There are no major surprises in its Q2-2010 results. The key points are summarised below:

a) revenue rose 1.7% to S$141.7mn

b) net profit rose 34.9% to S$10.33mn

c) other expenses rose sharply to S$2.5mn - mainly forex loss

d) company has declared an interim dividend of 2 cents with books close on 27 Aug 2010 and payment on Sept 8, 2010.

Review and outlook

a) HDD revenues fell 11.4% in Q2-2010 from Q2-2009. But Q2-2009 was an unusually high base. Q2 is normally the weakes HDD quarter and Broadway's Q2 was slightly below Q1-2010.

b) other business grew with non-HDD revenue more than double 2009 while foam plastics was higher by 23-24%.

c) the group suffered an unrealised forex loss of S$2.9mn from RMB/US$ fluctuations - excluding this its net profit would have been S$13.2mn a rise of 65% over the same period in 2009.

d) Trend focus is looking at annual demand for HDD rising by 12.2% in 2010

e) Broadway has acquired new machines and increased capacity by 7.5% - ontrack with its planned expansion of 20% in capcity in 2010.

f) an interim dividend of 2 cents has been declared which is equal to the full dividend for 2009 - assuming 4 cents dividend for 2010 would give a runnin yield of 3.2%.

For more on my views and whether Broadway remains in my Stocks or if I am changing my price target - check my Stock Picks section.

Comments

Broadway share price going down this morning Home come the share price goes down instead after delivering good results, some more got 2ct dividend. I remember the other time, the share price went up after delivering good results. Liew on 29 July 2010 09:43 AM
Broadway Could be traders taking profit after the results as the shares started to move ahead of the results....or some disappointment in terms of the pace of recovery from more aggressive analysts. But for medium term investors think stock is still undervalued.....so further weakness can be a buying opportunity. Kevin on 29 July 2010 11:30 AM
BROADWAY INDUSTRIAL GROUP LTD Hi Kevin, I agree with you. Today, four broking houses issue buy for Broadway, Lim & Tan even mention that Broadway could be a M&A target: Lim & Tan: 1)Broadway’s share price has done very well, being one of the few SGX listed stocks to be retesting its all time highs reached in Apr ’10 and having surpassed its 2007 pre - Lehman Brother’s peak levels of $1.10, we note that its PE of 5-6x is still undemanding relative to SGX listed peers such as Beyonics’ 12x, Armstrong 9x and Cheung Woh 8x (its Malaysian competitor JCY is trading at 9-10x PE) and this despite it having the biggest profit, sales and market cap. ?? With M&A interest returning as evident from Armstrong’s recent announcement and Broadway’s Founder and Chairman SS Wong (who owns 44.7% of the company) close to retirement age, it may potentially be a takeover candidate as well. This is especially so given its undemanding valuations and sizeable operations. Previous deals were done between 11-17x PE. ?? We maintain BUY. 2) DBS Vickers up tp from $1.50 to $1.55 3) CIMB maintain tp of $1.86 which pegs Broadway at 8x CY11 P/E (within its 5-year trading band). 4)DMG maintain BUY recommendation and TP of S$1.46. Broadway continues to be the top pick within their technology coverage. Liew on 29 July 2010 12:45 PM
US good deal : CEG (sorry not about Broadway) CEG was targeted by BRK (by $26.4) however EDF offer 30% premium to own the business. Now, Is CEG a great investment opportunity condition now? Common sense to invest CEG:- 1) If the Business GOOD ?: Mr Warren Buffett only interest in good business that have better future expectation with rational price. So, the prospect of the business should be fine otherwise it won't attract David Sokol and Warren Buffett. 2) Microeconomic point: Electricity consumption in the future will increase as you may observe people cooked by gas now replaced by electric so the future electricity car (5 yrs start~15 yrs common. More portable application like I-Phone, I-Pad, etc that charged by electricity with better battery storage technology (BYD). More concrete, you may check the electricity consumption from related energy department web-site. 3) The 2008 CEG setback due to the future energy contract went sour. EDF offer 30% premium compare BRK who offer about $26.4 (estimate) Roughly, US$ 34.3. Current price level on 2/Aug/2001 is US$ 31.XX which is less than above value and at low side. Current statistic (financial ratio) :- Price/Book: 0.72 PE: 1.32 (so low -- as price still low relatively to drastic earning increase (from asset sold -deleverage and operating net income also turn positive). (turn from negative earning from 2008 to 2009) Dividend yield:3% ROE (5 yrs average): 21.15% Net profit margin (TTM): 34% Current 2010 credit condition much improved :- Current ratio: 1.98 (2008 : 0.97) Quick ratio :1.81 (2008: 0.02 -- almost filed bankcruptcy and bargain sold to EDF). Some Simple arithmetic logic, if the deal worth :- worst case : Price drop back to 2009 crisis level ~$16. Current Price ~$ 32. Potential upper limit price: US$ 38 (shorterm); Long term US$ 80(previous peak $100) Probablity for above happen: assume >0.6 as already turn profit (include operatin profit) and debt reduce + better liquidity(current ratio ~2) Shorterm reward= (38-32)/32=18.7% (one year). If assume the probability happen 0.8. the reward will be: 15%. Long term reward= (80-32)/32 =150% (assume < 5 years). If CEG managed by BRK I probably rate the probablity 0.9. As I not familiar EDF management quality, so I assume 0.65. So, the reward could be 97.5%. (each year around 20%). If worst case, the price drop back to crisis year 2009 ($16):- Possible loss (16-32)/32=-50%. Probablity happen: I assume 0.3 so, possible loss -15%. even if this happen, they are other businessmen (like BRK) who interest to acquired CEG if their offer price is right. (Assurance).So, total permanent capital loss is very low. Conclusion & Suggestion: CEG seem worth to be invested from business point and price point. Possibility and probablity upside potential return is much better and downside loss. Yet it still high possiblity have assurance for the worst. http://money.cnn.com/2010/07/29/news/companies/buffets_mr_fixit_full.fortune/ Recently EDF also sold UK asset (USD9 bil) to Li Kar Shing to reduce thier debt and de-leverage ( I think the management learn the lesson from the financial crisis to play safe). They acquired CEG and sold UK, probably another signal CEG business is better than UK asset which Li Kar Shing interest (good).Recent trend: China buy Energy, HK tycoon buy energy, Warren buffett buy energy (mid-America), and Indian tycoo (Reliance) also look for it, . *Remarks: above statement just personal opinion and sharing, please do your own study for your own decision and own's responsibility for action. Cheers. Benjamin on 4 August 2010 10:35 AM

Broadway share price going down this morning
Home come the share price goes down instead after delivering good results, some more got 2ct dividend. I remember the other time, the share price went up after delivering good results.

Liew on 29 July 2010 09:43 AM

Broadway
Could be traders taking profit after the results as the shares started to move ahead of the results....or some disappointment in terms of the pace of recovery from more aggressive analysts.

But for medium term investors think stock is still undervalued.....so further weakness can be a buying opportunity.

Kevin on 29 July 2010 11:30 AM

BROADWAY INDUSTRIAL GROUP LTD
Hi Kevin,

I agree with you.

Today, four broking houses issue buy for Broadway, Lim & Tan even mention that Broadway could be a M&A target:

Lim & Tan: 1)Broadway’s share price has done very well, being one of the few SGX listed stocks to be retesting its all time highs reached in Apr ’10 and having surpassed its 2007 pre - Lehman Brother’s peak levels of $1.10, we note that its PE of 5-6x is still undemanding relative to SGX listed peers such as Beyonics’ 12x, Armstrong 9x and Cheung Woh 8x (its Malaysian competitor JCY is trading at 9-10x PE) and this despite it having the biggest profit, sales and market cap. ?? With M&A interest returning as evident from Armstrong’s recent announcement and Broadway’s Founder and Chairman SS Wong (who owns 44.7% of the company) close to retirement age, it may potentially be a takeover candidate as well. This is especially so given its undemanding valuations and sizeable operations. Previous deals were done between 11-17x PE. ?? We maintain BUY.

2) DBS Vickers up tp from $1.50 to $1.55

3) CIMB maintain tp of $1.86 which pegs Broadway at 8x CY11 P/E (within its 5-year trading band).

4)DMG maintain BUY recommendation and TP of S$1.46. Broadway continues to be the top pick within their technology coverage.

Liew on 29 July 2010 12:45 PM

US good deal : CEG (sorry not about Broadway)
CEG was targeted by BRK (by $26.4) however EDF offer 30% premium to own the business. Now, Is CEG a great investment opportunity condition now?

Common sense to invest CEG:- 1) If the Business GOOD ?: Mr Warren Buffett only interest in good business that have better future expectation with rational price. So, the prospect of the business should be fine otherwise it won't attract David Sokol and Warren Buffett. 2) Microeconomic point: Electricity consumption in the future will increase as you may observe people cooked by gas now replaced by electric so the future electricity car (5 yrs start~15 yrs common. More portable application like I-Phone, I-Pad, etc that charged by electricity with better battery storage technology (BYD). More concrete, you may check the electricity consumption from related energy department web-site. 3) The 2008 CEG setback due to the future energy contract went sour. EDF offer 30% premium compare BRK who offer about $26.4 (estimate) Roughly, US$ 34.3. Current price level on 2/Aug/2001 is US$ 31.XX which is less than above value and at low side.

Current statistic (financial ratio) :- Price/Book: 0.72 PE: 1.32 (so low -- as price still low relatively to drastic earning increase (from asset sold -deleverage and operating net income also turn positive). (turn from negative earning from 2008 to 2009) Dividend yield:3% ROE (5 yrs average): 21.15% Net profit margin (TTM): 34%

Current 2010 credit condition much improved :- Current ratio: 1.98 (2008 : 0.97) Quick ratio :1.81 (2008: 0.02 -- almost filed bankcruptcy and bargain sold to EDF).

Some Simple arithmetic logic, if the deal worth :- worst case : Price drop back to 2009 crisis level ~$16. Current Price ~$ 32. Potential upper limit price: US$ 38 (shorterm); Long term US$ 80(previous peak $100)

Probablity for above happen: assume >0.6 as already turn profit (include operatin profit) and debt reduce + better liquidity(current ratio ~2)

*Shorterm reward= (38-32)/32=18.7% (one year). If assume the probability happen 0.8. the reward will be: 15%.

*Long term reward= (80-32)/32 =150% (assume < 5 years). If CEG managed by BRK I probably rate the probablity 0.9. As I not familiar EDF management quality, so I assume 0.65. So, the reward could be 97.5%. (each year around 20%).

*If worst case, the price drop back to crisis year 2009 ($16):- Possible loss (16-32)/32=-50%. Probablity happen: I assume 0.3 so, possible loss -15%. even if this happen, they are other businessmen (like BRK) who interest to acquired CEG if their offer price is right. (Assurance).So, total permanent capital loss is very low.

Conclusion & Suggestion: CEG seem worth to be invested from business point and price point. Possibility and probablity upside potential return is much better and downside loss. Yet it still high possiblity have assurance for the worst. http://money.cnn.com/2010/07/29/news/companies/buffets_mr_fixit_full.fortune/ * Recently EDF also sold UK asset (USD9 bil) to Li Kar Shing to reduce thier debt and de-leverage ( I think the management learn the lesson from the financial crisis to play safe). They acquired CEG and sold UK, probably another signal CEG business is better than UK asset which Li Kar Shing interest (good).Recent trend: China buy Energy, HK tycoon buy energy, Warren buffett buy energy (mid-America), and Indian tycoo (Reliance) also look for it, . *Remarks: above statement just personal opinion and sharing, please do your own study for your own decision and own's responsibility for action. Cheers.

Benjamin on 4 August 2010 10:35 AM

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