Supply chain disruptions have delayed Nanofilm Technologies’ peak production period to 4Q2021 and possibly the new year, says UOB Kay Hian Research analyst John Cheong.
In an Oct 15 note, Cheong is maintaining “hold” on Nanofilm, with a lowered target price of $3.90 from $4 previously. The new target price represents a 6% upside.
“The peak period for Nanofilm’s production, especially for computers, communications and consumer electronics (3C) has been shifted to 4Q2021 and possibly 2022 due to supply chain disruptions,” writes Cheong.
Meanwhile, DBS Group Research analyst Ling Lee Keng is maintaining “hold” on the company while also trimming target price to $4.05 from $4.18 previously.
“Short‐term disruptions to Nanofilm’s customers’ supply chains caused by power supply curbs in China, component delays, and resurgent chip shortages have affected the group’s Consumer Electronics, Communication, and Computers (3C) business. Although demand remains strong, YTD revenue contribution from the Advanced Materials Business Unit, which includes 3C and other business segments, declined to 82% from 84% in FY2020,” writes Ling.
Nanofilm manufactures industrial machinery. The company specialises in batch and load-lock systems, as well as materials with special surface properties and nano-engineering capabilities.
See: Nanofilm appoints new CEO; says it continues to see growth momentum in 3Q business update
See also: Temasek subsidiary reduces stake in Nanofilm at $4.34 per share
On a positive note, Nanofilm is seeing strong customer demand and is building up its revenue pipeline with multiple new product introduction (NPI) projects. “We trim our 2021 and 2022 earnings per share (EPS) by 5% and 3% respectively.”
Nanofilm’s advanced material business unit (AMBU), the largest segment which contributed around 82% of 9M2021 revenue has experienced short-term supply chain disruptions due to component shortages and the indirect impact of power outages in China.
The 3C sub-segment, which contributed around 66% of 9M2021’s revenue, has seen substantial growth in smartphones, which more than offsets the declines in wearables and computers.
Nanofilm’s other segments grew substantially and contributed to about 16% of its 9M2021 revenue, due to increased adoption in multiple industries.
The industrial equipment business unit (IEBU) grew substantially and contributed approximately 15% of Nanofilm’s 9M2021 revenue with orders from the precision engineering industry and advanced materials industry.
With increased adoption of Nanofilm’s technologies for various applications, IEBU expects to supply equipment to both third parties and internal use, including Sydrogen.
The nanofabrication business unit (NFBU) contributed to about 2% of 9M2021’s revenue. As an important nanofabrication supplier and development partner to its end customers, NFBU continues to work on multiple new projects, such as optical lens and sensory components.
In the current quarter, NFBU has commenced mass production of its first micro‐lens array (MLA) project for new‐generation wearables.
Sydrogen is working towards maiden revenue contribution in 2022. The JV between Venezio Investments and Nanofilm was completed on Oct 1, 2021 and has already commenced work in Shanghai and Singapore.
To prepare for commercial opportunities in China, Sydrogen is commissioning and installing its initial pilot production line at Nanofilm’s Shanghai Plant 2 for customer qualification in an automotive project involving a key component for a hydrogen fuel cell stack.
Nanofilm’s current deputy CEO and chief commercial officer, Gary Ho, will be appointed as group CEO with effect from Jan 1, 2022. Ho’s appointment is part of Nanofilm’s ongoing succession planning as it continually identifies and develops talent to reinforce its management team in tandem with Nanofilm’s development and growth, says Cheong.
Ho’s accomplishments in Nanofilm include achieving sustainable growth in revenue and profits across the business units especially for the Automotive business and positioning the NFBU for growth, as well as developing a strong pipeline of orders.
“We reduce our 2021/2022 earnings forecast by 5% and 3% respectively as we reduce our gross margin estimate. We cut our 2021 and 2022 gross margin estimates by around 1-2ppt to 51% and 53.5%, to account for potential lower utilisation rate and loss of operating leverage due to supply chain shortage,” writes Cheong.
For more stories about where the money flows, click here for our Capital section
Cheong’s revised earnings estimates indicate y-o-y earnings growth of 13% and 41% for 2021 and 2022 respectively, from 19% and 38% previously.
Ling is also trimming earnings estimates, lowering the FY2021F forecast by 8% and the FY2022F forecast by 5%.
“Nanofilm is also moving towards in-house produced renewables in 2022 onwards, although supply is still expected to be small. Overall, for the industry, we continue to expect the shortage issues to only improve in 1H22 and to normalise in 2023,” writes Ling.
As at 1.40pm, shares in Nanofilm are trading 5 cents higher, or 1.36% up, at $3.73.
