Singapore Equity: Broadway Industrial (Update)

An update from my earlier post:
https://tradehaven.net/market/singapore-equity-broadway-industrial/

2 important updates to Broadway Industrial (Broadway) since my last posting (I won’t include this in the model portfolio due to the reasons specified in my earlier posting) but Broadway does look like a good trading idea in the near-term.

1.  On 24 April 2015, the company announced that the late Mr Wong Sheung Sze’s shareholdings in the company from his estate amounting to 36.19% of outstanding shares have been fully distributed to his widow, Ms. Lau Leok Yee.

An interesting point to note is that there was no disclosure of any changes for the late Mr Wong’s daughter, Ms Wong Yi Jia, even though she is a non-executive director of the company.

My interpretation is that Yi Jia has no deemed interest in the shares held by Ms Lau so any change in control of the company can be solely determined by Ms Lau.

2. 1Q 2015 results were announced on 29 Apr 2015 and Broadway’s margins and bottom-line have seen sequential improvements over the past 2 years:

Like all contract manufacturers, Broadway has benefited from the collapse in commodity prices which has allowed them to enjoy margin expansion as cost savings are generally passed down to customers on a lagged basis.

Management also attributed the improvement in margins to greater operational efficiency and productivity after the restructuring and streamlining exercises in 2014.

Valuation
1Q 2015 EPS was SGD 0.24 cents.
Assuming 1Q accounts for 24% of full year forecast, this implies full year 2015 EPS of SGD 1.00 cents.

At the latest share price of SGD 21.0 cents, Broadway is trading at 20.9x FY15 P/E which does not appear cheap relative to peers.
However, we must note that this is still coming from a very low base and P/E can drop rapidly with slight increases in net profits.

1Q 2015 book value is SGD 52.67 cents and NTA is SGD 39.06 cents.

I recall Broadway used to trade at between 0.5x P/B and 0.7x P/B so with the re-rating of contract manufacturers in recent months (CDW, Innovalues, Memtech etc), we could see Broadway being re-rated towards SGD 26.5 cents to SGD 37.1 cents.

Technically, Broadway is on an uptrend and looks poised to fill the gap between SGD 24.5 cents and SGD 25.5 cents.

Resistance is seen between SGD 26 cents and SGD 28 cents.