Analysts see potential upside in Nanofilm Technologies International following the confirmation of its joint venture with Temasek, to capture the growing hydrogen economy.
The joint venture was first announced back in April, with $140 million worth of initial investment slated.
Via the joint venture, Sydrogen, Nanofilm will apply its nano-coating technology into parts used in hydrogen fuel cells, a potential market.
The joint venture will be targeting potential users in China, where there are favourable government policies promoting the use of hydrogen-fuelled vehicles as a cleaner alternative.
The company is already enjoying steady growth from applying its technology in consumer electronics and industrial machinery.
Nanofilm, in return for a 65% stake in the joint venture, will be contributing related intellectual property as well as $21 million in cash. Temasek will fund the remaining 35% stake with a cash contribution.
“Notwithstanding the early stages of commercialization, we think the joint venture will provide upside optionality for Nanofilm especially with current focus on energy transition,” writes Jefferies analyst Krishna Guha in his July 22 note.
DBS analyst Ling Lee Keng, who has a “buy” call and $6.22 price target on the stock, notes that Nanofilm already has a “green” product in its line up, specifically, a type of piston ring used by car makers, promising 30% lower emissions and energy loss, compared to conventional ones.
“This further penetration of the clean energy market with Temasek is another growth avenue for the group,” writes Ling, who is expecting Nanofilm to report earnings growth of 45% for the current year ending Dec 2021 and another 21% ending Dec 2022.
Guha notes that on top of the initial investment of $140 million, the joint venture partners will top up with additional capital down the road. In addition, Nanofilm will also be issued with warrants giving the company the right to subscribe for additional shares in the joint venture at a nominal value in case an IPO is launched within five years of subscription.
See also: Nanofilm Technologies confirms $140 million JV with Temasek to capture growing hydrogen economy
Nanofilm has also granted Temasek a put option that can be exercised in case an investment exit, be it via an IPO or trade sale, is not achieved within 8 years.
Guha, who has a “buy” call and $6.50 target price on the stock, notes that further financial details are limited at this point in time.
“As such, we look forward to voluntary disclosures especially as future capital calls come through,” he writes.
photo credit: A Mercedes-Benz hydrogen powered hybrid car / Bloomberg
