Exploring a Manufacturer of Precision-Machined Components with Dividend Yield near 7%

Article Highlights

• FY2021’s revenue grew by 17% year-on-year.
• FY2021’s Return on Equity remained well above 15%.
• Second consecutive year of being a net cash company.
• Rewarding shareholders with the implementation of dividend policy.

Listed on the Mainboard of the Singapore Exchange Securities Trading Limited since 1994, Broadway Industrial Group Limited (“Broadway Industrial”) is one of the leaders in the manufacture of precision components and assemblies.

Broadway Industrial is a key provider of actuator arms, assemblies and other related parts mainly for the global hard disk drive industry. Headquartered in Singapore, Broadway Industrial has four manufacturing facilities in China and Thailand and employs about 3,500 people.

Revenue & Net Profit

Source: ShareInvestor WebPro

For FY2021, Broadway Industrial’s revenue grew by 17.6% year-on-year to S$471.41 million. The growth was fueled by the increase in shipment volume and higher average selling price of its HDD products arising from a shift in its product mix from personal and mobile computing segments to high performance enterprise segment.

Meanwhile, Broadway Industrial’s profit after tax saw a muted growth of just 6.3% year-on-year to S$14.42 million. Despite a 25% year-on-year growth in gross profit, the slower growth in its bottom line can be explained by the higher income tax and administrative expenses.

Management Efficiency Ratio

Source: ShareInvestor WebPro

Despite the higher earnings, Broadway Industrial’s Return on Assets (“ROA”) and Return on Equity (“ROE”) saw a slight decline in FY2021 to 6.6% and 17.5% respectively. This decline can be attributed to the significant increase in the amount of shareholders’ equity.

On the other hand, Broadway Industrial’s Cost to Revenue has come down slightly to 92.6% in FY2021. Despite the decline, the figure remained well above 90%, which shows the nature of its business operation being cost intensive.

Leverage Ratio

Source: ShareInvestor WebPro

Broadway Industrial saw its interest coverage ratio improving to 14.5 times in FY2021, on back of the higher profit after tax. With such a high interest coverage ratio, this indicates that the Group has sufficient earnings on hand to meet its interest obligations.

Meanwhile, the Group continued to be in a net cash position, as seen from the table above. Despite the higher total debt to equity and debt to assets ratio, the significant jump in the amount of cash and short-term investment was more than enough to cover its higher debt load in the balance sheet.

Dividend

Source: ShareInvestor WebPro

Without a dividend payout in the past few years, Broadway Industrial finally dished out a total dividend per share of 1.5 Singapore cents in FY2021. This translates into a dividend payout ratio of 45.8% (including special dividend).

In the latest earnings press release, the Group has officially implemented a dividend policy to distribute approximately 30.0% of its net attributable profit annually from FY2022 onwards. This latest move will provide visibility in terms of rewarding shareholders with a stable dividend payout.

Based on its share price of S$0.205, this translates into a dividend yield of 7.32%.

Conclusion and Prospects

To conclude, Broadway Industrial saw its FY2021’s financial performance lifted by the increase in shipment volume and higher average selling price of its HDD products.

Buoyed by this development, the Group has resumed paying out dividends to shareholders. Finally, the implementation of dividend payout policy will ensure that investors will be rewarded in line with the performance of the Group.

In terms of management outlook, barring any significant macro disruption and unforeseen negative impact from the COVID-19 situation, the Group remains cautiously optimistic about the prospects of its HDD business in the near-term as the demand for mass capacity drives (high performance enterprise HDDs) and legacy drives (personal storage HDDs) is expected to remain strong.

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