Nanofilm Technologies International's recent acquisition of a German company to beef up its presence in Europe has not changed the restrained view of CGS-CIMB's William Tng.
Citing the absence of re-rating catalysts, Tng, in his Jan 3 note, has maintained his "reduce" call and 75 cents target price on the stock.
On Dec 21, Nanofilm announced it is paying $9.9 million to acquire AxynTeC Dünnschichttechnik, a Germany-based thin-film coating solutions provider, whose customers include those in medtech and non-consumer electronics.
According to Nanofilm, AxynTeC’s proprietary Diamond-Like Carbon (DLC) equipment and DLC advanced materials as being complementary to its Physical Vapour Deposition (PVD) equipment and coating portfolio.
"Coupled with available factory space for Nanofilm to deploy additional equipment, this would allow Nanofilm to enter the EU market more swiftly, according to management," says Tng.
Nanofilm, via this acquisition, aims to speed up its growth in Europe and has set up an office in the Netherlands to help drive this.
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However, Tng warns of other existing hiccups facing Nanofilm. For example, an unnamed customer selling smartwatches is facing a patent dispute.
As a result, this particular, which was not named by Tng, has put a halt on sales.
Tng estimates that smartwatches accounted for between 10 and 20% of Nanofilm's FY2023 revenue.
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Meanwhile, in the absence of meaningful re-rating catalysts, Tng expects Nanofilm to face a "challenging" business environment for FY2024 and FY2025.
His target price of 75 cents is pegged to 12.1x FY2025 earnings, which is -2 standard deviation below the average PE for FY2021 to FY2023.
The way Tng sees it, upside risks include new order wins from customers as well as faster operational progress at JVs ApexTech and Sydrogen Energy in the current FY2024 and coming FY2025, leading to higher net profit contribution and strong demand upturn from customers.
On the other hand, potential derating catalysts are high customer concentration and higher operating costs as the company expands into other countries and other businesses.
Nanofilm shares, as at 3.22pm, changed hands at 90 cents, down 2.19% for the day and down by more than a third over the past year.
