Broadway

Broadway: DBSV cites Broadway as its cheapest turnaround play in HDD and Upgrade counter to BUY with higher TP of $0.44.

Note that US stocks rallied on better than expected China PMI and US ISM data that lifted optimism that manufacturing sector is on recovery. Tech sector stole the limelight with Nasdaq rising to an 11-yr high that is a notable milestone. This is likely to give tech stocks in Asia a lift.

Sitting right in the middle of the tech optimism is Seagate that rocket 21% after Co. lifted 2012 sales forecasts 14% higher than consensus e. Seagate manufacturing plants were not directly affected by Thai flood last yr, unlike rival Western Digital. Even for WD, production also recovered more quickly than what investors had anticipated. Seagate shares are at multi-yr high. WD shares have recovered to July 11 levels, far beyond the lows seen during the Thailand flood last year.

Overall, house reckon this is a big boost for our HDD related stocks such as Broadway and Armstrong. House had positioned Broadway as a turnaround play in recent wks and maintained this stance despite Co. issuing a profit warning. Analyst optimistic that earnings would rebound quickly in 1Q12 as Broadway ramps up its Wuxi plant to support Seagate (45-50% of sales), which is benefiting from WD’s disruptions.

Believe Broadway’s potential market share gain would be permanent, as some smaller rivals have fallen out because of the flood. According to market sources, Broadway is seen striking new engagements recently. Non-operationally, there is scope for writeback of unrealized MTM losses and impairment charges to boost bottom-line.