Broadway Industrial buckled under disaster

Thai floods wreaked havoc to its profitability leading to a worse-than-expected 4Q11 net loss.

Broadway Industrial suffered property damage and operational losses related to production stoppage after raging floods hit Thailand, where the company's plant was located, late last year.

But a rebound is still in the cards, even as early as 1Q12 given a full repair of its supply chain processes.

Here's more from DBS:

Broadway warned that it will report a net loss for 4Q2011 and that FY11 will also be loss making. This is worse than our estimates, as we were projecting 4Q11 to breakeven.

The net loss for 4Q2011 is attributed to i) impairment charges of US$4.4m on fixed assets and inventories damaged by the floods in Thailand; and ii) undisclosed amount of operational losses arising from the floods.
The floods in Thailand had caused a substantial disruption to the Hard Disk Drive supply chain in Thailand and also affected the production output of the industry. This resulted in lower customer orders for Broadway in 4Q2011. Although Broadway’s fixed assets and inventories in Thailand are fully insured, the amount claimable will be subject to an assessment by the insurance company, which is still underway.

As mentioned previously, Broadway has successfully relocated some of its output from Thailand to its Wuxi plant in China since Thailand halted production in mid Oct. This has enabled the group to continue supporting existing customers as well as to capture additional business opportunities from competitors affected by the floods. The Thai plant is expected to resume operations by end of 1Q2012, subject to customers’ requalification. However, utilisation level may normalize only in 1H12 as recovery of the HDD supply chain is expected to take another 3-6 months.

As a result of the loss in 4Q11 and unrealized mark-to-market (MTM) losses arising from the changes in fair value of certain forward foreign exchange contracts, of which a substantial amount was recognised in 3Q2011, Broadway expects to be loss making for FY11. Excluding these one-off charges, management guides that the group would have been profitable in 4Q2011 and FY2011.

Although the losses in 4Q11 are worse than our estimates, it is not unexpected. We had highlighted in our report that the impact of the floods in Thailand on Broadway will be material but not immediately quantifiable especially as Broadway had powered up its Wuxi plant to compensate for the loss of production in Thailand. We maintain our view that 4Q11 was the worst quarter and that the rebound in demand will be evident in 1Q12 although the quantum still hinges on the speed of recovery of the entire HDD supply chain.