When NanoFilm Technologies International went public last October, it was Singapore’s biggest IPO in 2020, and its biggest non-REIT listing in three years. With a market value of more than $1.7 billion at its IPO price of $2.59, the company, which can trace its roots to the laboratories of Nanyang Technological University, was also the first local “unicorn” to cross $1 billion in its market value.
Cornerstone investors included big names such as AIA Investment Management, Aberdeen Standard Investments (Asia), Credit Suisse, and JPMorgan Asset Management (Singapore), as well as several asset management subsidiaries of Temasek Holdings. Collectively, the company raised more than $500 million from both institutional and retail investors, giving it the extra capital to fund its growth.
Evidently, the allocation these investors received at IPO was not enough. On Dec 30, notable fund manager Capital Group bought 171,100 NanoFilm shares at $4.38, bringing its deemed stake up to 39.5 million shares, or 6%, from 5.98% previously.
On Dec 9, NanoFilm announced it would be included in three indices: The FTSE ST Small Cap Index, FTSE ST China Index and FTSE ST Singapore Shariah Index. This means the stock will garner more institutional following. “This inclusion looks to increase the overall awareness and exposure of the group to index funds and bring about higher trading liquidity to investors globally,” says Shi Xu, the company’s founder and executive chairman.
On the back of bullish calls by a growing list of brokers, NanoFilm’s share price jumped to $5.13 as at Feb 5 — compared to its IPO price of $2.59 — in a span of just over three months. And if the bullish calls are to go by, there is more upside. Credit Suisse, for one, was the most recent broker to join the fray with the most optimistic price target of $6 issued on Jan 20.
Ahead of its IPO, NanoFilm, which provides nano-coating services for customers in various industries ranging from consumer electronics to automotive, has been reporting steady growth. Earnings for 1HFY2020 ended June 30 increased by 62.3% y-o-y to $18.5 million, on the back of a 40.9% y-o-y jump in revenue to $77.8 million.
With planned capacity expansion, analysts are seeing visible earnings growth. In a Dec 14 note, UOB Kay Hian analysts John Cheong and Joohijit Kaur expect a three-year earnings CAGR of 38.7% for FY2019–FY2022 due to bigger wallet share from its existing customers and new applications of technology.
Furthermore, they note in their earlier initiation report on NanoFilm in November that the global market size for advanced materials is expected to grow at a CAGR of 7.5% for FY2020–FY2023, according to global market research and consultancy firm Frost & Sullivan, with end demand from smartphones, wearables and automotives.
The company’s business is niche but it has a big customer base of some 300 customers, across various industries. Tellingly, the company has established long-term relationships with some of the key customers. For example, it has a 14-year business relationship with Fuji Xerox, 13 years with Nikon and 12 years with Sunny Optical Technology. It also has five and four years with Microsoft and Huawei, respectively.
CGS-CIMB Research analysts William Tng and Darren Ong like NanoFilm for owning the right intellectual property, which gives it the pricing power to generate sustainable margins as a sole supplier to these customers.
Specifically, the company, via its unique FCVA technology, is the single-source supplier for 90% of its top 10 customers. “NanoFilm’s patented technology (key patents’ expiry range from 2025–2039) lends confidence to our 30% average net profit margin, driving net profit growth of 21.8–60.7% over FY2020 and FY2022,” say Tng and Ong, who have an “add” call and $5.52 price target.
Among the various product categories, analysts note that NanoFilm is enjoying strong growth from smartwatches, which enjoyed a 20% y-o-y worldwide growth in 1H2020. The company is exploring new areas where its technology can be applied, including biomedical, medical implants, and Internet of Things-related products and equipment. — Lim Hui Jie
