NANOFILM TECHNOLOGIES INTL LTD (SGX:MZH)
Nanofilm Technologies NDR Takeaways - Positioned For Growth & New Opportunities In The EV Space
- We held an NDR with NanoFilm Technologies (SGX:MZH)’s management. Key takeaways include:
- operations have improved in 3Q22 with the Shanghai plant reverting back to its normal state and NanoFilm is currently in the peak season production,
- NanoFilm is gaining traction with Customer Z as it wins more wallet share across all product categories, and
- NanoFilm expects positive development in the EV battery space, where further details will be revealed in the near term.
Production has resumed back to normal in 3Q22 and is currently enjoying peak season demand.
- NanoFilm Technologies' management confirmed that the production of its Shanghai Plant has not faced any disruption from the sporadic lockdown, as seen in 1H22, where it has caused a notable loss of revenue. In addition, the plants are currently producing at high utilisation rate amid the 2H peak season for consumer electronic products.
- On the other hand, NanoFilm is diversifying its geographical footprint by setting up a coating services facility in Japan and expanding its nanofabrication plant in Vietnam.
Gaining traction with the largest customer from winning more wallet share across all product categories.
- NanoFilm is able to gain more wallet share and improve its earnings quality from its largest customer, Customer Z as NanoFilm has balanced out the revenue contribution for three product categories:
- wearable & accessories,
- computer (laptop, tablet) and
- smartphone.
- To recap, NanoFilm relied more heavily on the coating of wearable and computer products from Customer Z back in 2019. As of 1H22, Customer Z contributes more than 50% of NanoFilm’s revenue and NanoFilm is able to grow its wallet share by winning coating services for more new features and premiumisation of high-end products.
- Also, NanoFilm has made good traction in the smartphone space where it has been chosen in the coating of new exotic and brilliant colours.
Expect further positive developments in the EV battery space.
- In the near term, NanoFilm expects to form a JV in the advanced batteries components for electric vehicles (EV) in China. NanoFilm highlighted that the potential JV partner is a renowned supplier of EV batteries and NanoFilm’s coating technology has gone through many testing phases by the potential JV partner, with satisfactory results.
- Upon confirmation of the JV, NanoFilm targets to produce a working prototype within a few months, before starting mass production in around six months’ time. It also foresees a good potential in this space given the sheer size of the total addressable market in the EV space.
- NanoFilm remains focused on executing its growth strategy in the following key strategic areas and will provide the market with periodic progress updates:
- geographical diversification and coverage,
- new segments with capability and product expansion,
- JVs and M&As, and
- R&D and engineering product development.
- R&D efforts in new exciting areas are intensifying with pathways to commercialisation.
Geographical diversification and coverage.
- In 2H22, NanoFilm will be expanding its coating services footprint with a coating facility in Osaka, Japan. It is currently in the midst of qualifying its advanced materials solutions with a customer for application on ceramic products.
New segments with capability and product expansion.
- NanoFilm’s green technological solution, which has vast potential applications, has the capability to replace the environmentally damaging electroplating process.
- Sydrogen believes it has the best coating performance for bipolar plates used in fuel cells, as validated by its customers. It has also achieved significant progress with the qualification of two industrial scale coating lines, with strong interest from multiple global and domestic customers.
NanoFilm Technologies – Earnings forecast revision and recommendation
- We maintained our financial forecasts for NanoFilm and value NanoFilm based on PEG of 1.0x (growth based on 3-year EPS CAGR of 20% from 2021-24). Refer to the report attached below for the peer comparison table. Our target P/E multiple of 20x 2023F P/E is at a slight discount vs NanoFilm’s peers’ 19x 2023F P/E.
- See
- We believe NanoFilm’s current valuation of 15.6x 2023F P/E provides an attractive entry level.
- Catalysts include:
- Better-than-expected customer demand for NanoFilm’s coating services and solutions.
- New application in the advanced material segment such as EV, green energy and fast-moving consumer goods.
John Cheong
UOB Kay Hian Research
|
https://research.uobkayhian.com/
2022-09-28
SGX Stock
Analyst Report
2.720
SAME
2.720
