Nanofilm Technologies International's lower-than-expected 1HFY2023 results, coupled with multiple recovery hurdles on the horizon, has prompted analysts to cut their target prices on the stock.
On Aug 10, the company, which provides coating services for parts used in consumer electronics and other industrial products, reported a loss of $7.6 million for 1HFY2023, versus earnings of $19 million in the year-earlier period. Revenue in the same period was down 34.4% to $73.2 million, because of a lower volume.
The company's management has described an uncertain demand outlook which will weigh on the topline, and also warns that because of costs to be incurred in capacity expansion, its margins will remain under pressure.
In his Aug 12 report, Citi's Jame Osman maintains his "sell" call on the stock, and has cut his target price to 85 cents from $1.05, given how he has reduced his FY2023 earnings forecast by 73% and FY2024 EPS by 26%.
Nanofilm has thus far been largely operating out of its China-based facilities. It is in the midst of setting up a presence in Vietnam and the company has told analysts it is eyeing India and even Europe as well.
In contrast with the capex-heavy operations in China and Vietnam, Nanofilm plans to adopt a more "capex-light" approach in India by working with other existing suppliers of key customers, at least for the initial batch of production in 1QFY2024.
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Even so, Osman is maintaining his "cautious view" on this stock. "We anticipate further headwinds driven by uncertain demand recovery and margin pressure from the capacity expansion plans," writes Osman, whose current target price is based on 22x FY2024 earnings.
"Within our Singapore tech coverage universe, we prefer companies such as Venture Corp with a relatively more diversified customer base and in our view better positioned to benefit from the structural supply chain diversification efforts of customers," adds Osman.
For DBS Group Research's Ling Lee Keng, she is similarly seeing a challenging outlook for the company. While the second half of FY2023 might be better versus the first half because of a seasonal pick-up in demand, order momentum might be slower than anticipated.
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"Higher costs from the various initiatives to drive long-term growth are also expected to affect margins. We have slashed our earnings estimate further to factor in the near-term challenges and slow order momentum," writes Ling in her Aug 14 report, where she has cut her target price to 88 cents from $1, while keeping her "fully valued" call.
William Tng of CGS-CIMB, too, flags that 2HFY2023 might be an improvement in revenue because of seasonality but the year might still end with a loss.
Tng, in his Aug 11 note, has maintained his "reduce" call on the stock, but with a lower target price of 91 cents, based on 12.8x FY2024 earnings estimate, a lower valuation multiple versus 14.3x previously. Tng's previous target price was $1.13.
UOB Kay Hian's John Cheong, believes that despite the near-term challenges, Nanofilm continues to enjoy "strong" mid to long-term prospects given how it is a "choice" vendor to its clients with deeper penetration and geographical strategic sites coverage of supply chains of the various consumer end products.
In addition, Nanofilm is well poised to capture new markets in the coming FY2024 in segments such as green plating applications of EV battery connectors used in new energy end-market, as well as functional coating applications in industrial end-markets.
Cheong, which has earlier downgraded the stock along with a target price of $1.11, has changed his rating to "hold" but with a lowered target price of $1.
