CGS-CIMB Research analyst William Tng has kept an “add” rating on Nanofilm with a lowered target price of $3.05 from $3.07.
“Our target price (based on FY2023 earnings per share (EPS) forecast) is reduced slightly to $3.05 as the -1 s.d. P/E multiple over October 2020 to August 2022 has fallen slightly to 23.3x (previously, we used 23.5x P/E multiple which was the -1 s.d. P/E multiple over October 2020 to June 2022),” Tng writes in his Aug 12 report.
On the back of Nanofilm’s results for the 1HFY2022 ended June, Tng has lowered his FY2022 EPS estimate by 3.1% to “reflect the Covid-19 one-off expenses”. The company had incurred a one-time expense of $2.1 million to keep productions running during the Covid-19 lockdowns in Shanghai during the 1HFY2022. Operations in Shanghai have now normalised, according to Nanofilm’s management.
During the period, Nanofilm saw revenue increase by 15.2% y-o-y to $111.3 million, coming in 4.2% above his expected revenue of $106.8 million. Nanofilm’s revenue also formed 39.0% of Tng’s forecast for the full year.
In the 1HFY2022, Nanofilm reported lower gross profit margin of 44.94%, down 1.16 percentage points y-o-y. Nanofilm quantified that due to the Covid-19 lockdowns in Shanghai, the company lost $8.0 million in revenue.
For the FY2023 to FY2024, however, Tng has raised his EPS estimates by 0.3% each due to the share buybacks conducted, which has reduced the company’s outstanding number of shares.
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Further his report, Tng is remaining positive on Nanofilm as management had previously guided that the seasonally stronger 2HFY2022 trend will remain intact in FY2022.
“For FY2020-FY2021, on average, 2HFY2022 accounted for 70.0% of full-year revenue. Its major customer accounted for 56% of 1HFY2022 revenue and y-o-y, the list of parts that this customer is sending to Nanofilm for coating has grown,” he writes.
“We do not expect further major capex in 2HFY2022 but expect Nanofilm to continue to invest in human talent to grow its business,” he adds.
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The company highlighted that as a near-term objective, it is in active discussions with a partner in China to set up a factory (on a rental basis) to coat components for batteries used in electric vehicles.
To the analyst, rerating catalysts include new order wins from customers and market share gains, while downside risks include high customer concentration and the repeat of Covid-19 lockdowns in Shanghai.
As at 1.34pm, shares in Nanofilm are trading at 6 cents up and 2.58% higher at $2.39 at a FY2022 P/B ratio of 2.89x and dividend yield of 1.23%.
