Ling Lee Keng of DBS Group Research has cut her target price for Nanofilm Technologies International MZH from 83 cents to 63 cents, following FY2023 earnings that came in below her expectations.
While there are signs of half-on-half recovery for 2HFY2023 ended Dec 2023, Ling, who has a "fully valued" call on the counter, believes that the company is still facing margin pressures and that new businesses are still in their respective developmental stages.
For 2HFY2023, the company, which provides coating services for parts used in consumer electronics and other equipment, recorded earnings of $10.8 million, down 56.9% y-o-y, but reversing from a loss of $7.6 million incurred in 1HFY2023.
This brings full-year earnings to $3.1 million, down 92.8% y-o-y, and revenue for the same year to $177 million, down 25.4% y-o-y.
Gross margin in 2HFY2023 reached 40.6% from 32% in 1HFY2023 but was still below 48.7% fetched in 2HFY2022, as operational savings were offset by higher material costs.
The company plans to pay a final dividend of 0.33 cents, on top of 0.33 cents already paid as an interim dividend.
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In her Feb 27 note, Ling states that Nanofilm's various new ventures such as those servicing the renewable energy industry will only see significant contribution in FY2025 onwards.
The company's various new operation sites outside China, such as a second site in Vietnam and a relatively smaller site in India, are just starting to get off the ground.
As such, Ling has cut her FY2024 and FY2025 target price by 15% and 16% respectively on the back of the still challenging environment and margin pressure as the group continues to put in place new initiatives for long-term growth.
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Her new target price of 63 cents is based on 18x FY2024 PE.
John Cheong and Heidi Mo of UOB Kay Hian are similarly bearish as they foresee slow recovery despite new projects. They have kept their "sell" call and lowered their target price to 60 cents from 66 cents previously.
The company sees higher revenue and profit in the current FY2024 with its China +1 strategy of customers, improving project pipeline visibility and more meaningful contributions from its hydrogen joint venture with Temasek, Sydrogen.
"However, macro headwinds persist with geopolitical tensions, inflationary pressures and rising interest rates," state the analysts.
Their lowered target price of 60 cents is based on 16x 2024F EPS, pegged to -1SD to its long-term forward mean, down from 17.5x previously, as they felt the company's PE mean multiple has deteriorated due to several quarters of disappointed earnings.
"While Nanofilm's new projects and initiatives point to a recovery, we think this will take some time. Additionally, the challenging environment it faces could lead to further de-rating of its PE multiple," state Cheong and Mo.
William Tng of CGS International is relatively not as bearish. He has kept his "reduce" call but his target price of 75 cents has been kept as well and is higher than the other analysts.
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Writing in his Feb 28 note, Tng points out that the company's FY2023 earnings of $3.3 million is better than the loss of $0.7 million he had projected.
Nonetheless, with the typical first-half seasonal weakness, there will be a limit to how much Nanofilm's share price can rerate, particularly given how consumer spending remains cautious on weak macroeconomics.
Tng's target price of 75 cents is based on FY2025 P/E of 12.1x, 2 s.d. below its average P/E in FY2021 to FY2023.
