Analysts from DBS and Citibank have maintained their “buy” calls and unchanged target prices on Nanofilm, with DBS Group Research holding their target price at $4.12 and Citibank at $3.92.
DBS Group Research’s Ling Lee Keng writes that after an “eventful year” in 2021, with supply chain disruptions, increased expenses relating to the new Shanghai Plant 2, and the resignation of key executives, she is hopeful that the company can deliver stronger growth in 2022.
On Feb 23, Nanofilm reported 2HFY2021 earnings of $44.3 million, up 13.2% y-o-y. Revenue in the same period was up 6.8% to $150.1 million.
Earnings for the whole of FY2021 was up 8% to $62.2 million, on revenue of $246.7 million, up 13%.
Compared to 1HFY2021, earnings improved by 145% h-o-h, while revenue was up 55% y-o-y, due to better net margins of 30% for 2HFY2021 versus 19% for 1HFY2021.
During its results briefing for the 1HFY2021 on Aug 13, 2021,Nanofilm announced earnings for 1HFY2021 ended June 30 fell 3.1% y-o-y to $17.9 million instead of registering a steep trajectory as expected.
See also: Nanofilm Technologies reports 2HFY2021 earnings of $44.3 million, up 145% over 1HFY2021
As KGI analysts put it at the time, Nanofilm missed estimates by “a mile”. Other analysts had predicted full-year earnings of around $80 million. The company’s 1HFY2021 revenue grew 24.2% y-o-y to $97 million, which was also a slower pace than expected.
This led to a sharp sell off in the market, with Nanofilm’s share price plunging from $5.97 before the earnings were announced to $4.25 at the end of Aug 16 after the weekend break.
The following day, the stock dropped by another 10% to as low as $3.80 before closing the day at $3.82. More than $1.4 billion in Nanofilm’s market value was wiped out over the two days.
Ling notes that with investments made in the new Shanghai Plant 2, which is about double the size of Plant 1, and additional equipment to significantly boost the group’s long-term production capacity, Nanofilm is well positioned for growth.
“With the worst in supply chain disruptions likely behind us, we expect a strong earnings growth of 29% in FY2022, followed by another 17% in FY2023.”
She highlights the upside could come from a stronger momentum for the 3C segment, higher contribution from the NFBU segment, and successful entry into new segments.
To her, growth will be supported by a strong balance sheet with net cash of $189 million as at end-June 2021 and the new Shanghai Plant 2, which still has ample room for expansion.
In his report on Feb 25, Citibank’s Jame Osman says he “came away with better clarity on the potential revenue drivers for Nanofilm in the near-term” even though no explicit financial targets were shared for 2022.
He adds that he has “greater conviction” that the company could gain a larger share with its key Customer Z on new product launches and shift to premium solutions.
Furthermore, Osman deems that easing supply chain risks also opens the pathway for production ramp-up from both its 3C and non-3C customers, referring to the consumer electronics, communication and computers (3C) segment.
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He believes issues relating to Shanghai Plant 2 appear “largely behind the company” and as such, anticipates better margin performance ahead driven by operating leverage.
Osman also expects near-term earnings momentum to pick up in FY2022, forecasting an EPS compound annual growth rate (CAGR) of 19% over FY2021-2024, adding that its longer-term fundamentals and business growth outlook remain attractive.
As at 11.20 am, shares of Nanofilm were trading at $2.81, with a FY2022 price to book ratio of 3.8x and dividend yield of 0.8%, according to DBS’s estimates.
