CGS-CIMB Research analyst William Tng has maintained his “add” call on Nanofilm, but lowered his target price on the stock from $3.50 to $3.07.
In a June 30 note, Tng notes that China’s lockdowns may have caused operating costs for the company to spike, putting pressure on its revenue for 1HFY2022 ending June 30.
He notes that Nanofilm’s main production site is in Shanghai, as well as the various related supply chains of its key customers are in that area.
Tng reveals that according to the brokerage’s Hong Kong based research analyst, camera module manufacturer Q Tech’s handset camera module shipments for January to May were hurt by Shanghai’s 5-week lockdown in April to May.
He believes that despite its ability to continue production during the lockdown, operating costs are expected to increase as it had to maintain the “closed loop manufacturing arrangement” in that period.
In an interview with The Edge Singapore back in April, Nanofilm’s executive chairman Shi Xu says that the “closed loop” involves the company’s 1,500 staff in Shanghai sleeping, eating and working in the factory, minimising contact with the outside world.
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Tng forecasts that as such, Nanofilm can face a “2H-loaded year”, similar to FY2021, where 1HFY2021 turned in a weaker performance compared to 2HFY2021.
Furthermore, inflation risks also cloud the company’s outlook, with Tng citing an April 2022 survey conducted by CNBC, which revealed that American consumers have started to cut back on spending.
On the cost side, suppliers such as Nanofilm are grappling with higher input costs, and there is also a risk of a decline in consumer spending, especially on discretionary consumer tech related products, which accounted for about 63% of Nanofilm’s 1QFY2022 revenue.
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As such, he lowers his FY2022-2024 revenue forecasts by 4.5 -8.2% respectively, and gross profit margin assumptions by 0.5 to 1 percentage point.
At the same time, he raised his operating expense assumptions for FY2022-2023 by 1.3-2.7%, and cuts his FY2022-2024 earnings per share (EPS) forecasts by 12.8-15%.
For the company, he thinks that re-rating catalysts include new order wins from customers and market share gains, while downside risks are high customer concentration, nad persistent component shortages.
As of 10.03, shares of Nanofilm were trading at $2.33, with a FY2022 P/B ratio of 3.24 and dividend yield of 1.13%
