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Nanofilm Technologies is the first local tech unicorn to be successfully listed on the Singapore Exchange. In this article, we discuss the factors that made Nanofilm into what it is today, and explore the growth catalysts that lie ahead.

Chloe Nadia Halim, Published on 27 May 2021

  • Nanofilm Technologies (SGX:MZH) offers coating solutions that provide functional and aesthetic improvements to its customers’ end-products.
  • Nanofilm’s proprietary coating technology has opened up new markets that were previously inaccessible by conventional coating technologies, giving the company a competitive advantage.
  • Nanofilm has over 300 customers across different industries, many of which are renowned blue-chip names, and the company has been increasing its production capacity to keep pace with the growing demand.
  • Additionally, Nanofilm is well positioned for growth across multiple avenues. The company is set to benefit from new applications of technologies, such as 5G networks, Internet of Things optics, medical lens, and renewable energy.
  • Based on our estimates, Nanofilm is currently trading at a 2022 PE of 31.8X, which is above the peer average of 23.6X. This premium can be attributed to the company’s proprietary technology moat, superior net margins, as well as strong earnings growth.

Nanofilm Technologies was founded in 1999 by Dr Shi Xu, and started off as a high-tech spin-off from the Nanyang Technological University Singapore.

It has since come a long way. Today, Nanofilm is a leading provider of nanotechnology solutions across a wide range of industries such as computer, communications and consumer electronics (3C), automotive, precision engineering, and printing and imaging.  

How Nanofilm operates

Nanofilm operates via three business segments: 1) Advanced Materials, 2) Nanofabrication and 3) Industrial Equipment.

1) Advanced Materials (Coating): Surface solution services based on the company’s vacuum coating technologies and processes. Utilises its patented filtered cathodic vacuum arc (FCVA) technology to deposit advanced materials on components of end-products such as computers, wearable devices, and smartphones.

2) Nanofabrication: Fabricate and supply nanoproducts based on its nanofabrication technology and software designed to customers’ specification, such as optical and fresnel lenses.

3) Industrial Equipment: Manufactures and sells turnkey equipment systems ranging from coating equipment to auxiliary equipment installed at customers’ production lines. The company also customises software for the systems and provide aftersales support.

Figure 1: Nanofilm’s FY20 revenue breakdown by segment

Nanofilm’s core business is providing surface vacuum coating technology solutions, to enhance the functionality and useful life of end-products. As such, a majority of its revenue is obtained from the Advanced Materials (Coating) segment (84%) (Figure 1).

The remaining revenue is contributed by the Industrial Equipment segment (11%) and the Nanofabrication segment (5%). 

Unique proprietary technology gives Nanofilm a competitive advantage

Nanofilm uses a unique approach called Filtered Cathodic Vacuum Arc (FCVA) to deposit coating solutions, and this patented FCVA technology remains the gold standard in the vacuum coating industry.

This is because the technology enables vacuum coating deposition to be performed at room temperature, thus allowing this coating to be performed on a wider variety of substrate materials, such as plastics, rubber, and ceramics on a commercial scale, with the added benefit of being more environmentally friendly.

This helps to open up new markets that were previously inaccessible by conventional coating technologies due to the low melting points of substrate materials.

Figure 2: Nanofilm’s coating technology offers significant advantages to end-products

Moreover, other benefits of the FCVA coating technology include improved hardness and strength, greater corrosion and wear resistance. These qualities are important, as they prolong the durability and lifespan of end-products, while enhancing its attractiveness and saleability (Figure 2).

On a whole, Nanofilm’s patented FCVA technology is a standout in the marketplace given that it plays an important role in many end-products. It has created opportunities for the company across several industries, such as 3C (computer, communication, and consumer electronics), automotive, precision engineering, and printing and imaging.

Increasing production capacity to keep pace with strong customer demand

Due to the superior advantages that its patented technology has accorded to customer’s end-products, Nanofilm experiences a high demand for its services.

The company has over 300 customers across different industries, and is typically engaged at an early stage of its customers’ product development process. Many of these customers are renowned blue-chip names, such as Nikon, Canon, Sunny Optical, and Microsoft.

Nanofilm has also indicated in its prospectus that ‘Customer Z’ is its biggest customer. While ‘Customer Z’ is not identified due to confidentiality restriction agreements, we believe that this company is Apple.

Not only does it have a long-standing relationship with its key customers (Table 1), Nanofilm is the single source supplier to nine out of its top ten major customers.

Table 1: Length of Nanofilm’s relationship with some of its key customers
Key customerApproximate length of relationship
Fuji Xerox14 years
Nikon13 years
Canon13 years
Sunny Optical12 years
TPR11 years
Riken10 years
Ricoh10 years
Customer Z18 years
Microsoft5 years
Huawei4 years
Source: Nanofilm Technologies Prospectus, iFAST Compilations1Customer Z’s name has not been identified due to confidentiality restriction agreements. Customer Z is known to be a global technology group that designs, develops, and sells consumer electronics, computer software and online services.

In order to keep pace with the strong customer demand, Nanofilm has increased its production capacity. The company currently owns four production facilities situated in Singapore, Shanghai and Yizheng in the PRC, and Hai Duong in Vietnam. Additionally, it has a new Shanghai Plant 2 that started operations on 21 February 2021 (Figure 3).

Figure 3: Nanofilm’s production facilities 

The new Shanghai Plant 2 is two times larger than that of the Shanghai Plant 1. It would increase Nanofilm’s production space by 66,406 square metres to over 110,000 square metres, allowing it to house more coating equipment. As such, the total number of coating equipment would increase by 83%, from 176 units to 322 units, to meet the growing demand from its customers.

Well-positioned for growth across multiple avenues

Going forward, there is still much more room for Nanofilm to grow. As currently, the global market size for advanced materials is expected to increase at a CAGR of 7.5% from USD 21.1 billion in 2021 to reach USD 24.3 billion in 2023 (Figure 4).  

This is driven by the growth in the key user segments for advanced materials such as smartphones, computers, wearables, and automotive.

Figure 4: Global market size for advanced materials is growing 

Many of Nanofilm’s existing customers belong to these key user segments, and hence the company is well-positioned to capture a bigger wallet share, arising from the strong demand coming from these industries (Table 2). 

Table 2:  Key demand drivers in the 3C and automotive segment
End MarketKey demand drivers
SmartphonesKey demand drivers are expected to be 5G implementation, replacement cycle and premiumisation trendsSignificant opportunity to capture more of its customer value chain in components manufacturing (e.g. smartphone enclosures)
ComputersKey demand drivers are expected to be 5G implementation, and new applications such as hinges and premiumisation trends
Wearables and AccessoriesKey demand drivers from smart watches are expected to be premiumisation trends as well as aesthetic enhancements such as fashionable colour optionsAccessories such as new wireless earphones models with enhanced features, better battery life helps drives demand
AutomotiveKey demand drivers are expected to be the ramp-up of Nanofilm’s joint venture with CYPR (China’s largest piston ring maker), and diversification into other engine components and fuel cells
Source: Nanofilm Technologies Prospectus, iFAST Compilations

Moreover, given that Nanofilm’s coating technology enhances an end-product’s functional and aesthetic properties, it is highly scalable across several industries.

Hence, the company is exploring the application of its technology in other new industries, including biomedical, Internet of things (IoT), FMCG personal grooming, and new renewable energy. This would help open up a large untapped total addressable market (TAM) worth up to USD 423 billion (Figure 5).

Figure 5: Nanofilm is well-positioned for multiple avenues of growth

In fact, to take advantage of the opportunities in new industries, Nanofilm has recently entered into a joint venture with Temasek to tap on the opportunities in the hydrogen energy economy.

Sydrogen Energy, the joint venture between Nanofilm and Temasek subsidiary Venezio Investments, will apply Nanofilm’s advanced materials surface solutions to critical components in fuel cell and electrolyser systems to prevent their wear and tear. We believe that his venture would lead to further adoption of Nanofilm proprietary coating technology and fast-track the commercialisation of a wide range of fuel cell applications.

Key investment risks 

Nanofilm faces customer concentration riskNanofilm’s largest customer (Customer Z) accounts for more than 50% of its revenue. Moreover, its top five customers contributes to 80% of its revenue. The failure to retain any of these key customers could be detrimental to Nanofilm’s business.

Potential for intense competition within this industry: The high growth as well as strong margins (gross margin of 55% and net profit margin of 26% in FY20) achieved by Nanofilm, will attract competitors wanting a share of this lucrative industry. Competitors may also develop and introduce new technologies or enhance their existing products and services, which could cause a reduction in the demand for Nanofilm’s product.

Semiconductor chips shortage could delay projects: The 3C industry is likely to be faced with increasing pressures in their supply chain due to the current semiconductor chip shortage. While 3C manufacturers have been stockpiling chips in anticipation of this, a prolonged chip shortage would likely lead to severe disruptions in the supply chain. Nanofilm, being a coating solutions provider for many 3C manufacturers, would be faced with a number of delayed projects arising from this supply chain disruption. 

Valuation premium reflects its competitive advantage  

Nanofilm is currently trading at PE ratio of 31.8X, based on estimated 2022 earnings, much higher than the peer average of 23.6X (Table 3).

Nanofilm’s high PE can be attributed to the company’s proprietary technology moat, superior profit margins (26.4% vs industry average of 14.3%) and sole supplier status for most of its major customers.

Table 3: Peer comparison
NameMarket Cap(in SGD millions)2022E PE(X)Net Profit Margin (%)
Nanofilm Technologies3,433.831.826.4
3M Company154,862.519.018.3
PPG Industries Inc56,166.320.29.7
Rogers Corporation4,670.421.513.6
EMS-Chemie Holding28,606.234.325.4
OC Oerlikon Corporation5,082.819.95.6
Source: Bloomberg Finance L.P., iFAST CompilationData as of 26 May 2021

Moreover, Nanofilm’s earnings growth does not seem to be slowing down anytime soon. As illustrated from its latest FY20 results, its earnings per share (EPS) had grown from 7.0 cents to 10.6 cents, increasing by 52% from FY19 to FY20 (Figure 6).

Figure 6: Nanofilm’s EPS is expected to increase over the years

All in all, Nanofilm’s key competitive advantage is in its highly scalable technology, which can be used in multiple industries to create many new applications for coating, and is the main catalyst for the company’s continued growth.

We do not have a recommendation for Nanofilm Technologies.


For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.