Broadway

Broadway: good headline 1Q12 results, but underlying weak. Net profit at $15.2m, +67.5% yoy, on the back of sales of $157.7m, +14% yoy, +38.5% qoq. But taking out exceptional items, core net profit came in weak at $2.9m, -48.2% yoy. Broadway took advantage of its competitors’ pdtn shortage to capture more mkt share, with its HDD actuator arm worldwide mkt share est to increase from 16% to 20%. In doing so, the group decided ti hire back its Shenzhen plant’s workings which were laid off earlier in the process of plant relocation. As a result, gross margins fell sharply by 28 ppts yoy to 10.1%, a negative surprise. Going forward, Broadway plans to grab more mkt share for both its HDD business as well as its foam plastic business, with $60m built up this yr to increase capacity. DMG expects the group’s HDD business to achieve economies of scale towards 2H12 once the relocation of pdtn processes is complete along with the mass orders from Western Digital. Says eventually, labor intensive work such as hook up and assembly services will be carried out in Chongqing and Thailand, while the mnftg process of the actuator arms which is mainly automated by CNC machines, will remain in Shenzhen and Wuxi. DMG maintains Buy with unchg TP of $0.53, based on 8.8x (5-yr historical avg) FY12E P/E.