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Singapore’s Big Loser for the Week

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One of the biggest losers in Singapore’s share market this week is Broadway Industrial Group Ltd (SGX: B69). It has lost 11.5% since last Friday to close at S$0.23 yesterday. In comparison, the Straits Times Index (SGX: ^STI) has dipped by only 1% to 3,314 points in the same period.

Broadway Industrial was founded in 1969 and got listed in our shores in 1994. It is one of the top three manufacturers of actuator arms and related assembled parts for the global hard disk drive industry. Having a track record of over 40 years, it also provides eco-friendly foam solutions for packaging, insulation, automotive, medical and other applications.

On 1 August 2014, the firm announced its second quarter earnings. Revenue for the three months ended 30 June 2014 went up 7.3% year-on-year to S$170.3 million due to a good showing from both its Foam Plastics division and Components division. The former clocked sales growth of 16.3%to S$48 million, while the latter’s top-line increased by 4.2% to S$122.3 million. Net profit grew disproportionately by 90.5% to S$301,000.

As of 30 June 2014, Broadway Industrial only had a cash balance of S$15.7 million but had total borrowings of S$160 million. The gearing ratio, which is the ratio of total borrowings to shareholders’ funds, stood at 0.75.

Broadway Industrial ended its earnings announcement by saying that it remains cautious on its prospects for 2014. Market research reports on the hard disk drive industry have forecasted that the industry will stay flat or only have a slight upside for the rest of the year.

On the same day, the company also made public that it will be doing a rights issue. Two rights shares will be available for subscription by shareholders for every fifteen ordinary shares held. The issue price for each right share will be S$0.18 and up to 55.5 million rights shares will be issued.

Net proceeds, after deducting expenses and assuming all the rights shares are taken up, is estimated to be at S$9.64 million. The proceeds will go towards repayment of debt, help the company in its restructuring plans, and provide dry powder for growth opportunities.

Broadway Industrial will also see its gearing ratio step down from 0.75 to 0.71 after the rights issue, assuming of course, that all the rights shares are subscribed for. Broadway is trading at 58 times its historical earnings as of Thursday’s close and has not paid dividends since 2013.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.