NanoFilm Technologies - CGS-CIMB Research 2021-03-01: Inaugural Results Reassuring


NanoFilm Technologies - Inaugural Results Reassuring

  • NanoFilm Technologies's FY20 revenue was above at 111% and core PATMI in line at 96% of our full-year expectations.
  • NanoFilm Technologies continues to win wallet share from Customer Z and Microsoft. We expect a ramp-up in capacity in FY21F to meet strong demand from 3C (computer, communications and consumer electronics) market.
  • Reiterate ADD with an unchanged target price of S$5.52, still pegged to 35x FY22F earnings per share, supported by high demand for its customers’ products in the 3C market.

Nanofilm's FY20 results in line; Growth driven by 3C market and new orders

  • NanoFilm Technologies (SGX:MZH) reported a strong set of results, with FY20 revenue at S$218m (+52.8% y-o-y) and core PATMI at S$55m (+54.7% y-o-y), forming 111%/96% of our full-year forecasts.
    • NanoFilm Technologies’s Advanced Material Business Unit (AMBU) business was driven by higher contributions from its 3C and automotive sub-segments to post revenue of S$183m (+66.4% y-o-y) to form 84% of total revenue.
    • The Nanofabrication Business Unit (NFBU) segment recorded revenue of S$11m (+90.3% y-o-y), attributable to new project wins to produce Fresnel lenses for several smartphone models.
    • Industrial Equipment Business Unit (IEBU)’s revenue fell 10% y-o-y to S$25m, which was not a surprise for us as NanoFilm Technologies mainly keeps most of its manufactured equipment in-house to support the AMBU business and remains highly selective on equipment sales.
  • Adjusted EBITDA margin expanded 4.4% points to reach 44.4% in FY20, reflecting NanoFilm Technologies’s sole coater status and strong demand for its products and services, in our view.

Expect capacity ramp-up in FY21F underpinned by high 3C demand

  • Key takeaways from our earnings call with NanoFilm Technologies's management are
    • on a year-to-date basis, there has been no slowdown in its 3C business,
    • NanoFilm Technologies continues to win wallet share with Customer Z (largest customer by revenue) and Microsoft Corporation, and
    • the rollout of China National 6 emission standards will be a key growth driver for NanoFilm Technologies’s coated automotive piston rings.
  • In FY20, Customer Z’s contributions to NanoFilm Technologies’s revenue grew from a year ago (FY19: 51%), according to management. Industry news suggest that Customer Z has plans to raise production levels by 20%-30% in 2021F and could potentially launch a new suite of products in 2H21F according to our checks, which will continue to drive AMBU/NFBU revenue, in our view.
  • Microsoft expects good demand against a low prior year for its Surface products to drive growth in the mid-to high-teens range for 3QFY21, according to its 2Q21 earnings call.
  • We believe the robust outlook for NanoFilm Technologies's key customers will continue to drive growth for the 3C segment in FY21F, particularly for the smartphone, wearable and computer sub-segments.

Maintain ADD with an unchanged target price of S$5.52

William TNG CFA CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-03-01
SGX Stock Analyst Report ADD MAINTAIN ADD 5.520 SAME 5.520