S$0.345-BRAD.SI
?? Broadway warned that it will be in the red for 3Q ’11 (expected to be announced on 2 Nov ’11) due to unrealized losses arising from the changes in fair value of certain forward foreign exchange contracts that have been negatively impacted by the recent volatility in USD/SGD and USD/CNY exchange rates.
?? Without the unrealized forex losses, 3Q ’11 would have been profitable.
?? While the unrealized forex losses are nonoperational and non-cash in nature, it will still reduce the company’s shareholders’ funds from last quarter’s $228mln, and it is the first quarterly loss that the company is registering since it started quarterly reporting in 1Q ’07.
?? 3Q ’11 loss compares with quarter ago’s profit of $3.7mln and year ago’s profit of $12.5mln.
?? Besides the unexpected loss, we believe Broadway as well as the other hard disk drive (HDD) players such as Armstrong, Adampak, Cheung Woh and Miyoshi will be negatively impacted in 4Q ’11 by the severe floods in Thailand, which is a key manufacturing hub for the HDD as well as automotive sector.
?? Given the uncertain bottom-line performance, we use price to book ratio to evaluate Broadway.
?? At its peak levels in 2007 and 2010, Broadway had traded to a high of 1.2x price to book while at its lows in late 2008/early 2009, it had traded down to a low of 0.2x. The last time Broadway had plunged into full year losses in 1998/1999, the stock had similarly traded down to a low of 0.2x price to book.
?? At 0.63x currently, it is only in the middle of the historical range, hence we will still continue to give it a miss for now.
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