Broadway

Broadway: 3Q12 results missed estimates. CIMB downgrades to Underperform with TP $0.27 from $0.46 initially. Weak end demand coupled with inventory adjustment resulted in a poor set of 3Q12 numbers. Given the continuous weakness in the HDD sector, the outlook remains lacklustre until 2H13 Excluding exceptionals, Broadway incurred a loss in 3Q due to a steep decline in both HDD and non component-related businesses. Shipments and sales of HDD components plunged 25% and 30% qoq, respectively as it experienced a sharp cutback in orders in Sept. Non-HDD component sales also fell 27% qoq due to the slowdown in semiconductor-related components. The only bright spot is the foam packaging business where sales inched up 1% qoq due to better automotive component business. Profitability for all three units, however, was hurt by higher costs. Mgt sounded cautious during the post results briefing, which is not surprising in view of the weak outlook for the HDD sector. It plans to downsize its HDD operations and shift more backend assembly work from Shenzhen to Chongqing to improve HDD margins in FY13. It will also streamline its non-HDD operations and expects to add new customers in the next few quarters, which will help to improve capacity utilisation.