Nanofilm’s 1HFY2024 net loss of $3.7 million a “negative surprise”, says CGS International’s (CGSI) analyst William Tng, who downgrades his call from “hold” to “reduce”, and lowers his target price to 59 cents from 70 cents previously.
The mainboard listed company, which specialises in advanced materials and coatings, reported a net loss of $3.7 million for the first half of the year, lower than the 1HFY2023’s $7.6 million net loss.
This is despite a 13% y-o-y increase in revenue to $82.6 million due to higher depreciation costs of $2 million, and professional fees of $0.5 million related to its AxynTec acquisition in February, notes Tng.
As a recap, the group declared an interim dividend of 0.33 cents, similar to the same period a year before, while the 1HFY2024 revenue formed 43%/41% of CGSI’s full/Bloomberg consensus full-year forecasts, deemed in line as the second half has historically been seasonally stronger for Nanofilm, the analyst says.
Tng highlights that Nanofilm’s management is cautiously optimistic about the 2H2024 performance, as it anticipates higher revenue contribution from its 3C (computers, communications, consumer electronics) business segment given the seasonality effect and revenue contribution from projects delayed into the second half of the year.
“The group will also continue to reduce its operating expenses and guided that FY2024 capex will be lower y-o-y as it focuses on improving returns from its current asset base. Management also guided that FY2024 revenue and net profit could be higher versus FY2023’s,” notes Tng.
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He notes that the group’s upside risks include new order wins from customers, faster operational progress at JVs ApexTech and Sydrogen Energy in FY2025-FY2026 leading to higher net profit contribution, and strong demand upturn.
Meanwhile, de-rating risks include high customer concentration and higher operating costs as the group expands into other countries and businesses.
Tng thinks that it will still take time before Nanofilm’s gross profit margin (GPM) can revert to the 46.92%- 49.52% levels achieved in FY2021-FY2022.
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Hence, he trims his FY2024-FY2026 GPM assumptions by 7.4%-9.3% points, leading to a 19.7%-54.9% reduction in our FY2024-FY2026 earnings per share forecasts.
His new target price of 59 cents is based on a 12.7x FY2025 P/E, at a 10% discount to its peer average given customer concentration risks and high operating costs, though controlled.
As at 11.46am, shares in Nanofilm are trading 1 cent lower or 1.4% down at 70.5 cents.
