NanoFilm Technologies - UOB Kay Hian 2021-08-17: 1H21 Below Expectations Due To Higher Costs; Downgrade To HOLD

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NANOFILM TECHNOLOGIES INTL LTD (SGX:MZH)

NanoFilm Technologies - 1H21 Below Expectations Due To Higher Costs; Downgrade To HOLD

• NanoFilm Technologies's 1H21 earnings of S$17.9m (-3% y-o-y) was a miss, meeting only 22% of our full-year estimate. This was due to higher costs for the new Shanghai Plant 2 and higher new product introduction costs.
• NanoFilm Technologies expects recovery in 2H21 as new chip shortages ease and new projects commence.
• We cut our 2021 and 2022 EPS forecast for NanoFilm Technologies by 15% and 9% respectively.
• Downgrade NanoFilm Technologies to HOLD with a 27% lower target price of S$4.00 (28x 2022F P/E vs 35x previously, as NanoFilm Technologies fell short of our earnings expectations in 1H21).

Nanofilm's 1H21 Results below expectations.

• NanoFilm Technologies (SGX:MZH)’s 1H21 earnings of S$17.9m (-3% y-o-y) was a miss, meeting only 22% of our lower utilisation rate of 61% (vs 73% in 1H20). Nanofilm expects earnings for 3Q21 to be robust but 4Q21 will still depend on the demand from consumers as many products are 3C-related.

STOCK IMPACT

• Lower utilisation rate amid increase in capacity. The AMBU recorded a utilisation rate of 61% in 1H21, which fell from 73% in 1H20. This comes after the addition of 64 coating equipment in the plant throughout 1H21 to a total of 186 coating equipment, which represents a 53% increase in capacity.
• The second plant in Shanghai which started operations in Feb 2021 will add 66,406sqm of gross built-up area, raising the group’s total gross floor area to more than 110,000sqm.

EARNINGS REVISION/RISK

• We reduced our 2021 / 22 / 23 earnings forecast for NanoFilm Technologies by cut is also to account for potential weaker sales due to supply chain shortage.
• Our revised earnings estimates indicate y-o-y earnings growth of 19% / 38% / 28% for 2021 / 22 / 23, down from 32% / 29% / 26% previously.

VALUATION/RECOMMENDATION

• Downgrade NanoFilm Technologies to HOLD with a 27% lower disappointment in 1H21 and to reflect a more conservative view.
• Our target price implies a 28x 2022F P/E (35x previously). This is at a slight premium of 4% vs its peers.
• See
  • NanoFilm's Share Price,
  • NanoFilm's Target Price,
  • NanoFilm's Analyst Reports,
  • NanoFilm's Dividend History,
  • NanoFilm's Announcements,
  • NanoFilm's Latest News.
• We believe NanoFilm Technologies's unique technology, superior net margin and sole supplier status for most of its major customers provide a strong competitive advantage and warrant a premium to peers.

SHARE PRICE CATALYST

• Better-than-expected ramp up of nanofabrication business in Vietnam.
• New application in the 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/ 2021-08-17

SGX Stock Analyst Report h DOWNGRADE BUY 4.00 DOWN 5.510