Broadway has recovered strongly after hitting bottom in Q3 08.
BROADWAY INDUSTRIAL last night announced a 167% jump in Q4 net profit to S$10.1 million and gave guidance of a strong business outlook, prompting ‘buy’ calls from some analysts.
The Q4 profit turned out to be a continuation of a sharp trendline as the Hard Disk Drive (HDD) industry that Broadway manufactures components for recovered as 2009 progressed.
After a 3.1% rise in units of HDD shipped globally, TrendFocus has forecasted in its Feb 2010 report that the rise this year would be a sharp 19.4%.
This was highlighted by Broadway in a presentation to analysts yesterday evening, though Broadway chairman SS Wong added that average selling prices can be expected to erode, as they always have.
On top of that, he pointed out, labour costs in China, where Broadways has its manufacturing operations, are expected to rise.
But profit margins could remain firm as Broadway continues its 2009 efforts at streamlining its operations and automate its processes.
Broadway chairman SS Wong. NextInsight file photo
The Group is also rolling out new products from its foam plastics division.
On balance, DMG & Partners analyst James Lim said he is forecasting gross margins to increase from 13.7% to 14.0% in FY10.
He said in a report this morning that he has raised his target price from $1.01 to $1.16, adding: “Given the bullish picture, we now anticipate FY10 revenue and net profit to be S$671.3m (+8.1%) and S$38.8m (+20.5%) respectively.
"Top and bottomline estimates for FY11 have also been increased to S$771.1m (+15.9%) and S$43.9m (+27.6%) correspondingly.”
Kevin Scully, the executive chairman of NRA Capital, said Broadway’s financial numbers came in better than expected.
”I was looking for about S$30mn net and they came in at S$31.9mn. I still like the stock and am keeping it as one of my Stock Picks/Portfolio," he wrote in his blog this morning.
DMG & Partners' latest forecast (ratios are based on recent stock price of 85.5 cents).
" No change in my price target and FY2010 earnings as yet. I note other brokers have also been recommending the stock with a price target about 10% higher than mine.....”
He reckoned that “the story for 2010 will be revenue growth and a maintenance to a slight expansion of margins.”
Mr Wong, the Broadway chairman, said: "We are seeing signs of recovery across most of our business segments. Based on customer as well as industry estimates, we are positive that our HDD business will continue to track the industry growth while our non-HDD business is expected to hve a positive contribution in 2010."
To support the growth, Broadway is expanding its production capacity for all its business segments. The capex is expected to be S$40 million, up from S$18.3 million in 2009.
Recent story: BROADWAY, MAP, etc: HDD recovery to benefit component makers
