|Broadway Industrial Group Limited / BIGL ($0.21, up 0.01), a key provider of actuator arms, assemblies, and other related parts mainly for the global hard disk drive industry and one of our top 2022 tech pick, has achieved four consecutive halves of growth as its business turnaround strategy continues to yield results.
The Group recorded a 1.2% year-on-year (“YOY”) uptick in net attributable profit to S$7.4 million for the six months ended 31 December 2021 (“2H2021”) from S$7.3 million in the previous corresponding period in 2020 (“2H2020”).
Excluding the S$2.4 million charge for the impairment of goodwill, the net attributable profit for 2H2021 would have been S$9.8 million, an increase of 33.5%, coming in above expectations.
The improved earnings was on the back of a 24.1% YOY expansion in revenue to S$260.1 million.
Over the same period, gross profit margin rose 0.5 percentage point to 7.7%. On a full-year basis, the Group delivered its second straight year of profitability with net attributable profit rising 8.2% YOY to S$15.3 million as revenue expanded 17.7% YOY to reach a five-year high of S$471.4 million for the 12 months ended 31 December 2021 (“FY2021”). Excluding the S$2.4 million charge for the impairment of goodwill, the net attributable profit for FY2021 would have been S$17.7 million, an increase of 25.0%, above our expectation of $16.1 million.
Gross profit margin rose over the same period to 7.4% from 6.9% in the preceding 12 months ended 31 December 2020 (“FY2020”).
BIGL attributed its strong performance to an increase in shipment volume and higher average selling prices of its Hard Disk Drives (“HDD”) products arising from the strategic shift of its product mix from the personal and mobile segments to the high-performance enterprise segment.
BIGL Chief Executive Officer, Mr Tan Choon Hoong, said: “The positive turnaround of our business over the past two years reflects our successful execution of the operational and productivity improvements and also our efforts to optimise the supply chain. These factors as well as our strategic focus on the enterprise HDD segment had enabled us to leverage current trends for cloud storage and datacentre projects, which are pushing up demand and average selling prices for mass capacity and enterprise drives. As such, we were able to deliver better results.”
Mirroring the solid performance, earnings per share in 2H2021 and FY2021 rose to 1.59 Singapore cents per share and 3.27 Singapore cent per share respectively (2H2020: 1.57 Singapore cents per share; FY2020: 3.01 Singapore cent per share).
As at 31 December 2021, the Group remained in a healthy financial position with cash and cash equivalents of S$27.7 million (as at 31 December 2020: S$29.0 million). AŌ er deducting interest bearing debts of $11.3 million, net cash position is $16.4 million, representing 17% of its current market cap of $96 million.
|In view of the strong FY2021 results, the Board of Directors has proposed a final ordinary dividend of 0.5 Singapore cents per share and a special dividend of 0.5 Singapore cents per share. Together with the interim dividend of 0.5 Singapore cents per share, this brings the total dividend in respect of FY2021 to 1.5 Singapore cents per share (FY2020 dividend: nil), representing a pay-out ratio of 45%.
Backed by a strong balance sheet and supported by positive prospects in the HDD business, BIGL will be implementing a dividend policy to distribute approximately 30.0% of the Group’s net attributable profit annually from the current financial year ending 31 December 2022 onwards.
BIGL’s Non-Independent, Non-Executive Chairman, Mr Lew Syn Pau, said: “BIGL’s performance has grown from strength-to-strength in the past two years following a management restructuring and improvements to optimise the Group’s resources as well as a change in segment focus. We believe that the Group will continue to ride on this momentum to establish a sustainable future. This gives us the confidence to implement a new dividend policy that will enable our shareholders, who have supported us over the years, to enjoy some returns from their investment in the Group.”
The protracted COVID-19 situation globally has resulted in countries adopting different approaches in managing the pandemic as the virus evolves. This has and will continue to cause disruptions to the HDD supply chain as most of its suppliers and manufacturers are located in Asia. Barring any significant macro disruption and unforeseen negative impact from the COVID-19 situation, BIGL remains cautiously optimistic about the prospects of its HDD business in the near-term as the demand for mass capacity drives (high performance enterprise HDDs) and legacy drives (personal storage HDDs) is expected to remain strong.
The Group’s optimism is supported by a 2 February 2022 report from market intelligence provider, Trendfocus, which projected a compound annual growth rate of 11.4% in total HDD revenue for the period 2021 to 2026. This is expected to be led by the anticipated unit volume and exabyte growth from the enterprise HDD segment over the forecast period.
Given the better than expected 2021 performance and management’s still upbeat assessment of its outlook, we are expecting another 18% bottom-line growth for 2022 to $18 million, translating to an undemanding forward PE of 5.3x.
This coupled with its attractive dividend yield of 7.1% and strong ROE of 20% (against P/B of 1.1x) justifies maintaining our constructive view and retaining BIGL as amongst our 2022 conviction tech picks, notwithstanding the current malaise/sell-down of technology stocks globally, led by the Nasdaq Composite Index.