Here's the biggest risk behind Broadway's foray into consumer electronics

Credit profiles of new clients worry analyst.

According to OSK, Broadway Industrial’s 2QFY13 results were below estimates, with a core PATAMI loss of SGD1.1m on the back of an 8.5% y-o-y drop in revenue to SGD158.6m.

OSK also noted that the group must be cautious with its latest venture into consumer electronics.

Here's more:

We expect the Group to face an uphill task in rationalising its HDD operation while garnering new clients to take up excess capacity. While we expect BWAY’s semiconductor business to perform in line with the brighter industry outlook, we remain cautious on the group’s venture into consumer electronics.

Even though Management has been aggressively pursuing new customers (in order to utilise its excess machinery), we have concerns over the credit profiles of its potential clients.

This could potentially pose risks to the group’s financial health. The Group is saddled with a high net gearing of 67% as of end-2QFY13 although this has yet to cause alarm. Elsewhere, its receivable days have been trending higher.