UOB Kay Hian analyst John Cheong has downgraded Nanofilm Technologies International from a “buy” to a “hold” and slashed his target price by over 30% from $2.72 to $1.79.
The analyst explains that this was on the back of the company’s 9MFY2022 ended September results.
In its business update for 9MFY2022, Nanofilm says its revenue was up 10% y-o-y, led by growth in its advanced materials business unit (AMBU) and nanofabrication business unit (NFBU). This was offset by a decline suffered by its industrial equipment business unit (IEBU).
Cheong elaborates that AMBU is facing headwinds from some customers due to supply chain disruptions caused by Covid-19 restrictions in China, while NFBU enjoyed continued growth momentum from mass production of camera lens products.
On the other hand, IEBU is seeing delays and cuts in customers' capex amid increasing macro uncertainties.
Cheong says the 10% figure was below his expectations of 20%, and based on 1HFY2022 revenue growth of 15% y-o-y, “we can infer that 3QFY2022 revenue growth was flat to marginal.”
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This was due to the ongoing impact of Shanghai’s Covid-19 restrictions in 2QFY2022, which affected 3QFY2022 business momentum. Cheong also says the sporadic lockdowns in China hampered supply chain flow and customers' capex.
As such, he has reduced his earnings forecasts for FY2022, FY2023 and FY2024 by 11%, 18%, and 20% respectively, after reducing revenue forecasts by 11%, 15% and 15% respectively.
This is to factor in potential disruptions in customers’ orders due to the sporadic lockdowns in China.
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Currently, his earnings estimates indicate y-o-y earnings growths of 3% for FY2022, 15% for FY2023 and 17% for FY2024.
Separately, he notes that Nanofilm has revealed its FY2025 revenue and profit target of $500 million and $100 million respectively, implying an almost double figure compared to FY2021 and 60% growth from FY2021’s net profit of $62 million.
Some key drivers to meet these targets include the expansion of production facilities in new strategic locations, such as a second production facility in Vietnam.
Subject to due diligence and the execution of definitive agreements, the acquisition of the land use rights is expected to conclude in 1QFY2023, and this site is intended to serve as an additional production base for the group’s business activities.
Nanofilm also is expanding into green energy through its recently set-up joint venture with Shenzhen Everwin, where it will be providing its “Green Plating” vacuum coating solutions to the new energy advanced batteries industry in China.
Finally, Sydrogen, its joint venture with Temasek, has started production of bipolar plates coatings, and is also on track to developing fuel cell system demonstrators.
Some catalysts for Nanofilm would be a better-than-expected ramp-up of the nanofabrication business, as well as new application in the advanced material segments, such as automobiles (bi-polar plate electrodes in fuel cells) and fast-moving consumer goods.
As at 11.16 am, shares of Nanofilm traded at $1.39, with a P/B ratio of 2.4 and dividend yield of 1.1%
