Broadway

Broadway: 2Q11 results slightly below consensus.
Revenue +1.5% yoy to $143.8m, gross profit -22.4% to $18.3m on the back of higher manufacturing costs. Gross margins fell to 12.7% from 16.7% yoy. Net profit -63.9% to $3.7m on rising labor costs.

However qoq, revenue is +4% with gross profit +2.2% and net profit -59.3%, as 1Q11 results was boosted by a $2.5m forex gain, with no similar gains this quarter.

Net gearing stands at 21.7%, up significantly from 16.7% the previous year due to financing purchases in PPE and decline in cash balances due to capex.
Co recommends a 1cts interim DPS, similar to previous year, placing annualized yield at 4.8%.

3Q11 margins to remain weak as co incurs additional expenses from the commencement of operations in Chongqing, however 4Q11 to see cost savings as they transfer their mass production programmes there.

Sales from HDD business to continue seeing higher volumes as they take on the new disk separator related products. Already 2Q11 volumes were higher than 1Q, despite 2Q being typically weaker. However margins for the new products are lower and coupled with inflationary pressures and forex translations, will contribute to weaker performance. Segment sales dropped 7.7% to $91m (up 5% before forex translation) while profit before tax fell 65% to $3.5m

Its foam plastics division benefitted from the cessation of a loss-making subsidiary, resulting in a 31.6% increase in revenue and 29.9% increase in profit before tax yoy to $39.3m and $2.9m respectively. Outlook remains positive for this segment.

Stock currently trades at 4.9X P/E and 0.74X P/B.
CIMB keeps Neutral rating with $0.47 TP.