Broadway Industrial Group says that an arbitration which came about following the terminated sale of its hard disk business in China, has been concluded.

 

Shares of Broadway surged by 7.95% to change hands at 9.5 cents as at 4.26pm. 

 

According to Broadway, citing a Jan 2 notice by the China International Economic and Trade Arbitration Commission, all arbitration claims brought forward by the intended buyers have been rejected. 

 

On the other hand, all counterclaims by Broadway and related entities had their counterclaims rejected too.

 

" The award is final and binding upon the Claimants and the Respondents and has come into legal effect on Dec 29 2023," says Broadway.

 

In addition, the arbitration commission ruled that the arbitration fee of RMB797,551 for the relevant claims is to be borne by the claimants. 

 

Similarly, the counterclaim arbitration fee which amounts to US$21,597, is to be borne by the respondents.

 

Broadway maintains that the arbitration award has no material impact on its financial performance for the financial year ended Dec 31 2023 and the current year ending Dec 2024.

On Mar 17 Broadway Industrial Group : B69 0% (BIGL) non-independent non-executive chairman Lew Syn Pau acquired 100,000 shares at S$0.095 per share.

 

This increased his total interest in the manufacturer of precision components and assemblies from 9.83 per cent to 9.85 per cent.

 

Lew was appointed as independent director in November 2011 and re-designated as non-independent non-executive chairman in January 2019.

 

As a Singapore government scholar, Lew began his career with the Singapore government administrative service.

 

He was a Member of Parliament from 1988 to 2001 and the president of the Singapore Manufacturers&rsquo Federation from July 2002 to June 2006.

 

His prior work experience included being general manager and senior country officer of Banque Indosuez, Singapore branch executive director of NTUC Fairprice Co-operative Ltd managing director of NTUC Comfort Co-operative Ltd and assistant secretary-general of NTUC.

 

On Feb 28, BIGL reported an FY22 (ended Dec 31) net attributable profit of S$6.3 million on the back of S$352.4 million in revenue.

 

BIGL CEO Tan Choon Huang noted that the FY22 performance was in line with the overall industry performance which was impacted by macroeconomic headwinds that affected both business and consumer sentiments, especially in the second half of 2022.

 

Tan added that this led to significantly lower demand for hard disk drives which has had a good run for two years led by pandemic demand for greater cloud storage as more businesses took to remote working arrangements.

 

BIGL expects near-term HDD demand in the first half of 2023 to remain weak, weighed down by macroeconomic uncertainties and geopolitical tensions.

 

However, the group is cautiously optimistic that the recent easing of China&rsquo s Covid-19 restrictions will lead to improvements towards the second half as the country&rsquo s manufacturing prowess kicks into full gear.

 

In the longer term, the group expects demand for high performance enterprise and nearline HDD products to grow in line with rising demand for mass storage.

TAN Chee Keong, the former chief financial officer of mainboard-listed Broadway Industrial Group, has been convicted and sentenced to 3 months and 2 weeks&rsquo imprisonment for insider trading and acquiring benefits from criminal conduct.

 

Tan pleaded guilty to and was convicted of a charge under section 218(3)(a) of the Securities and Futures Act (SFA) for communicating insider information regarding Broadway shares to a friend.

 

He also pleaded guilty and was convicted of a charge under section 47(1)(c) of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) for acquiring a sum of money from that friend.

 

A remaining charge under the SFA, for communicating insider information concerning Broadway shares to another friend, was taken into consideration for the purpose of sentencing.

 

As then CFO of Broadway, Tan had been privy to insider information when Broadway was in discussions with Platinum Equity Advisors between March and August 2016 to sell 2 of its businesses.

 

He disclosed information on the deal to 2 friends on numerous occasions, knowing that they would likely purchase Broadway shares.

 

The 2 individuals subsequently made profits from the trading of Broadway shares.

 

In October 2016, Tan received S$30,000 in cash from 1 of these friends, which was his share of the profits from the insider trade.

 

As disgorgement of his share of the profits from the offence, Tan has paid S$30,000 to the state.

 

The investigations against Tan arose from a referral by the Singapore Exchange (SGX), while his conviction was a result of a joint investigation conducted by the Monetary Authority of Singapore (MAS) and the Commercial Affairs Department of the Singapore Police Force.

 

The court proceedings against the 2 individuals who are alleged to have received insider information from Tan are ongoing.

 

&ldquo As the chief financial officer of a listed company, Mr Tan owed a duty to the company and its shareholders not to divulge price-sensitive information that has not been disclosed to the market at large. His act of conveying such information to his friends to benefit them and himself undermines public confidence in the transparency and integrity of our capital market,&rdquo said Loo Siew Yee, assistant managing director of Policy, Payments & Financial Crime at MAS.

 

&ldquo MAS will continue to pursue officers of companies who engage in such misconduct, to ensure a level playing field for all market participants,&rdquo she added.

Two companies that the Broadway had planned to sell its manufacturing business to have initiated arbitration after the deal fell through in July last year. PHOTO CREDIT: PIXABAY

SHARES of mainboard-listed Broadway Industrial Group : B69 +6.15% have gained in recent months in spite of a scuppered deal, possibly thanks to decent growth. But investors should be aware that the company' s cash pile is at risk of being diminished by a legal dispute.

 

Broadway, which makes actuator arms for the hard disk drive (HDD) industry, posted a 17.7 per cent growth in revenue to S$471.4 million for the year ended Dec 31, 2021, from S$400.7 million a year earlier. Net profit in the same period grew 8.2 per cent to S$15.3 million, from S$14.1 million.

 

Net cash flows from operating activities declined to S$13 million in FY2021, from S$42.3 million a year ago, as trade and other receivables nearly trebled from S$8.6 million to S$24.3 million.

 

But the company also used up less of its cash on financing activities, keeping its pile of cash equivalents relatively steady at S$27.7 million versus S$29 million the year before.

 

For FY2021, the company will be distributing a total of 1.5 Singapore cents per share in dividends. This comprises an interim dividend of half a cent, paid in September last year as well as a final dividend of half a cent and a special dividend of half a cent, both approved by shareholders at the recent annual general meeting.

 

The payout represents 45.9 per cent of Broadway' s earnings for FY2021. Based on its close at S$0.19 on Friday (May 13), that gives the counter a historical annual dividend yield of 7.9 per cent.

 

The company has also recently formalised a dividend policy. It aims to pay out 30 per cent of its profits from FY2022, subject to " cash requirements for M& A activities and capital expenditure" .

 

Broadway has a market capitalisation of S$89.7 million. It trades at 5.8 times' its FY21 earnings and roughly on par with its net asset value per share of 18.95 Singapore cents as at end-December.

 

Given its ability to generate cash and management' s projection of a stable outlook, the company appears attractively priced.

 

Arbitration with buyer

 

There are, however, some risks to consider.

 

On Dec 31, 2020, Broadway had announced a sale and purchase agreement to sell its HDD business for S$50 million to 2 Chinese companies: Suzhou Gefan Hardware and Plastic Industrial Co and Seksun Technology (Suzhou) Co.

 

News of the potential sale had sent Broadway' s shares soaring. Over the 12-month period from the announcement, the counter gained 31 per cent.

 

But the deal was terminated on Jul 1, 2021 as the long-stop date had lapsed while the deal underwent a review by the Singapore Exchange. Broadway said the parties involved could not agree on an extended long-stop date.

 

Gefan and Seksun have since initiated an arbitration with the China International Economic and Trade Arbitration Commission, claiming US$3.9 million in break fees, legal costs and other expenses incurred as part of the agreement.

 

They are also claiming damages of S$9 million, being the net profit of Broadway&rsquo s HDD business in the first half of 2021. They allege that the profits would have gone to them if the transaction had been completed in time.

 

Broadway' s position is that the request for arbitration has no factual, contractual or legal basis, It has counterclaimed for the expenses incurred defending the arbitration and the arbitration costs itself.

 

Broadway was in a net cash position of S$16.4 million as at Dec 31, 2021, but an unfavourable arbitration ruling would put a serious dent in that cash pile.

 

The risk of that may already be reflected. Broadway&rsquo s shares are down 19.1 per cent from a high of S$0.235 on Nov 1.

 

Growth prospects

 

Broadway noted in its FY2021 financial statement that it is cautiously optimistic about the prospects of its HDD business, as demand for mass capacity hard drives for enterprise use and personal storage hard drives remains strong.

 

The company has machining and assembly operations in Ayutthaya, Thailand, where it derives 66.2 per cent of its revenue. It also has machining operations in Shenzhen, assembly operations in Wuxi and coil operations in Chongqing.

 

To diversify its business operations, the company acquired a 55 per cent stake in Beijing Ant Brothers Technology (BAB) in 2020. BAB develops cleaning robots for large glass facades on building exteriors and has a presence in Beijing, where it does research and development.

 

Broadway is working with an institute of higher learning to commercialise the facade cleaning robot in Singapore. It has also blended BAB' s capabilities with its own to form an entity called BIGL Robotics, which produces disinfection and service robots with artificial intelligence capabilities.

 

The robotics division generated losses of S$4.5 million in 2021. But the company is optimistic about the prospects for this business as it offers " solutions to many of the concerns we have today, including reducing high-risk work and reliance on manual labour and lowering costs" .

 

Broadway Industrial Group has announced that it has terminated the asset and share purchase agreement (SPA) in relation to the disposal of its hard disk drive (HDD) business on July 1.

 

Broadway Industrial had signed the SPA on Dec 31, 2020 for the disposal of its wholly-owned subsidiary BIGL Asia to the Seksun group of companies for a cash consideration of US$50 million ($67.22 million).

 

In its filing to the Singapore Exchange (SGX) on July 1, Broadway Industrial explains that the closing of the SPA was subject to the satisfaction or waiver of the conditions precedent by June 30, including the approval of shareholders to be obtained through an EGM.

 

The company had announced on June 16 that its circular to shareholders was still subject to the SGX-ST&rsquo s regulatory review process and that it intended to engage with the buyer to discuss an extension to the long-stop date.

 

However, the parties have not been able to agree on the extension of the long-stop date on mutually acceptable terms. 

 

To that end, Broadway Industrial states that it has issued the notice of termination to terminate the SPA with immediate effect.   The termination is not expected to have any material adverse impact on the net tangible assets or earnings per share for the FY2021 ending December.

 

Broadway Industrial states that it will continue to focus on its ongoing business activities in relation to the HDD business while it continues to source for other corporate, business, acquisition and financing opportunities as and when available.