Analysts from UOB Kay Hian and CGS-CIMB have maintained their “buy” and “add” calls on Nanofilm International after it released its first ever full year financial results after IPO.
UOB Kay Hian analyst John Cheong increased his target price from $4.52 to $5.51, while CGS-CIMB’s William Tng and Darren Ong maintained their target price of $5.52.
Cheong, in a March 3 note, highlighted Nanofilm’s strong performance in FY2020, in which revenue came in at $218 million, 52.8% higher y-o-y and core PATMI at $55 million, a 54.7% jump y-o-y.
He also pointed out its advanced materials business unit, which achieved a 66% growth in revenue to $182.5 million, mainly due to the computer, communications, and consumer electronics (3C) and automobile sub-segments.
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Its nanofabrication business unit recorded a 90.3% surge in revenue to $11.3 million, mainly due to new mass-production projects to produce Fresnel lenses for smartphone applications.
However, the industrial equipment business unit saw a 10% decrease y-o-y in revenue to $24.6 million, as Nanofilm mainly keeps most of its manufactured equipment in-house to support the AMBU business and remains highly selective on equipment sales.
Net margin also increased significantly by 2.9 percentage points (ppt) y-o-y for 2020 and 6.4 ppt h-o-h for 2HFY2020 due to better economies of scale.
He thinks as Nanofilm’s second plant in Shanghai has started operations in Feb 2021, it will support the company’s growth, as it will be able to house more coating equipment. This would potentially increase its total number of coating equipment by 83% to 322 units vs 176 as at end-2020.
Moving forward, Cheong thinks that Nanofilm will “maximise core technologies in new end-markets that have favourable growth trends.”
He said “to achieve sustainable growth, Nanofim aims to capture greater market share in the established end-market especially for its 3C customers, and ramp up its market share gains in new markets in the automobile, optical lens and optical sensor industries. “
Ong also added that future new areas that Nanofilm is exploring include FMCG personal grooming, new energy, medical lens and biomedical.
FMCG products in the personal grooming space include test-of-concept phase for shavers and electric toothbrush, while the new energy space includes bi-polar plates for hydrogen fuel cells, which could potentially be applicable for electric vehicles and be complementary with renewable energy.
As for CGS-CIMB’s Tng and Ong, they expect a capacity ramp-up in FY2021 underpinned by high 3C demand, and said that Nanofilm continues to win wallet share with Customer Z, its largest customer by revenue) and Microsoft Corporation.
Tng and Ong also added the rollout of China National 6 emission standards will be a “key growth driver” for Nanofilm’s coated automotive piston rings.
In FY2020, Customer Z’s contributions to Nanofilm’s revenue grew from a year ago, compared to FY2019’s 51 percent, according to management.
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The CGS-CIMB analysts said “industry news suggest that Customer Z has plans to raise production levels by 20%-30% in 2021F and could potentially launch a new suite of products in 2Hfy2021 according to our checks, which willcontinue to drive AMBU/NFBU revenue, in our view.”
In addition, they revealed that Microsoft expects good demand for its Surface products to drive growth in the mid- to high-teens range for 3QFY2021, according to its 2QFY2021 earnings call.
They believe the robust outlook for its key customers will continue to drive growth for the 3C segment in FY2021, particularly for the smartphone, wearable and computer sub-segments.
Shares of Nanofilm closed at $4.90 on March 3, with a FY2021 price to book ratio of 6.42 and dividend yield of 0.53%
