NanoFilm Technologies - UOB Kay Hian 2021-03-02: 2020 Strong Finish; Positioned For Growth Across Multiple Avenues


NanoFilm Technologies - 2020 Strong Finish; Positioned For Growth Across Multiple Avenues; Target Price Up 22%

  • NanoFilm's 2020 core earnings of S$61m (+70% y-o-y) excluding one-off IPO expenses beat our estimate by 6%. Revenue increased by 53%, driven mainly by both key segments.
  • Shanghai Plant 2, which started operations in Feb 21, will provide NanoFilm ample capacity for growth.
  • NanoFilm targets to maximise its technologies in multiple new end-markets to achieve sustainable growth.
  • We raise our 2021 and 2022 earnings per share forecast by 4% and 9% respectively. Our target price for NanoFilm increases 22% to S$5.51 (35x 2022F P/E).
  • Maintain BUY.

Strong finish to 2020, driven by advanced materials and nanofabrication segments.

  • NanoFilm Technologies International (SGX:MZH)’s advanced materials business unit achieved a 66% growth in revenue to S$182.5m, mainly due to the computer, communications, and consumer electronics (3C) and automobile sub-segments. Its nanofabrication business unit recorded a 90.3% surge in revenue to S$11.3m, mainly due to new mass-production projects to produce Fresnel lenses for smartphone applications. The industrial equipment business unit recorded revenue of S$24.6m, a 10% decrease y-o-y. Net margin also increased significantly by 2.9ppt y-o-y for 2020 and 6.4ppt h-o-h for 2H20 due to better economies of scale.
  • NanoFilm’s second plant in Shanghai started operations in Feb 21, and will support the company’s growth as it will be able to house more coating equipment which would potentially increase its total number of coating equipment by 83% to 322 units vs 176 as at end-2020.

Maximise core technologies in new end-markets that have favourable growth trends.

  • To achieve sustainable growth, NanoFilm aims to capture greater market share in the established end-market especially for its 3C customers, and ramp up its market share gains in new markets in the automobile, optical lens and optical sensor industries.
  • On the other hand, future new areas that NanoFilm is exploring include FMCG (fast-moving consumer goods) personal grooming, new energy, medical lens and biomedical. FMCG products in the personal grooming space include test-of-concept phase for shavers and electric toothbrush, while the new energy space includes bi-polar plates for hydrogen fuel cells, which could potentially be applicable for electric vehicles and be complementary with renewable energy.

Healthy utilisation rate amid huge increase in capacity.

  • NanoFilm has achieved good utilisation rate in its coating plants. Notably, in the advanced materials business unit, the group recorded a utilisation rate of 74%, which is relatively stable from the 71% recorded in 2019. This comes after the addition of 73 coating equipment in the plant throughout 2020 to a total of 176 coating equipment, which represents a 71% increase in capacity.
  • NanoFilm's second plant in Shanghai, which started operations in Feb 21, will add 66,406 sqm of gross built-up area, raising the group’s total gross floor area to more than 110,000 sqm.

NanoFilm Technologies - Earnings revision

  • We raise our NanoFilm's 2021 and 2022 earnings forecasts by 4% and 9% respectively, as we have factored in the higher-than expected net margin due to better economies of scale and better production excellence as NanoFilm increases production at its second plant in Shanghai. We also introduce 2023 financial estimates.

NanoFilm Technologies - Valuation & Recommendation

NanoFilm Technologies - Share price catalyst

  • Better-than-expected ramp-up of nanofabrication business in Vietnam.
  • New application in advanced material segment such as automobile (bi-polar plate electrodes in fuel cells) and FMCG.

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-03-02
SGX Stock Analyst Report BUY MAINTAIN BUY 5.51 UP 4.520