The team of analysts at DBS Group Research has kept its “hold” call and target price of 63 cents on Nanofilm Technologies International MZH following the company’s announcement of a partnership with Shanghai Hydrogen Propulsion Technology to develop a fuel cell power module.
Nanofilm entered the partnership via its subsidiary, Sydrogen, a 65%-owned joint venture with state investment firm Temasek.
The fuel cell power module will be slated for market-readiness in 2025 in the maritime industry, and will convert hydrogen from various sources into clean electricity without carbon emissions.
“With this new product offering, Sydrogen will expand its role in the fuel cell space from a pure component supplier to a provider of a complete product ready for use in the maritime industry,” writes the team at DBS.
While the project is an interesting development, Sydrogen is still loss-making, only contributing $1.05 million in revenue to the group in FY2023, representing less than 1% of total revenue.
Despite this, Nanofilm has other new initiatives in place, such as the advanced electric vehicle (EV) battery and solar cell businesses.
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“Meaningful contributions from these new initiatives are expected from FY2025 onwards,” writes the team.
Meanwhile, the outlook for Nanofilm’s computer, communication and consumer (3C) market is improving, which the team at DBS notes is “emerging from their trough”.
They continue: “With growing contribution from its notable new customer in the mobile space and recovery from its existing key customer, we believe the outlook for Nanofilm should improve going forward, barring any major disruptions to the supply chain and assuming a soft landing for the global economies.”
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The team’s target price is based on 18 times price-to-earnings ratio (P/E), which they note is “slightly below” one standard deviation from its approximately four-year average on FY2024 earnings.
Catalysts moving forward include further improvement in margins and increased orders from the new mobile customer. At the present, margins are still “below the optimal” level.
“We expect gross profit margin to improve to approximately 40% in FY2024, an improvement from 37% in FY2023 but still below the historical average of approximately 52% from FY2018 to FY2022,” concludes the team.
As at 11.10am, shares in Nanofilm are trading three cents lower or 3.30% down at 88 cents.
