Strong growth momentum

  • Sales affected by supply chain disruptions delayed, not derailed 
  • Demand remains strong and is spilling over into 2022
  • Increase FY21F earnings by 12%; maintain FY22-23F numbers, pending more visibility on the supply front 
  • Maintain BUY with lower TP of S$4.12 

Investment Thesis: 

Sales delayed, not derailed, as supply chain disruption is stabilising. We expect Nanofilm to report a strong 4Q21, as supply chain disruption is stabilising and 3Q21 could be the worst quarter on the supply front. Overall, the group is projected to report a positive growth in earnings of 8% for FY21F, despite expectations of higher costs, including one-off and higher operating costs as the group expands. 
Demand remains strong and is spilling over into 2022. With the worst in supply chain disruption likely behind us, coupled with the new Shanghai Plant 2, which is now officially certified, we can expect strong growth in 2022. Upside could come from: 1) Stronger momentum for the 3C segment, 2) higher contribution from the NFBU segment, and 3) successful entry into new segments. Growth is supported by a strong balance sheet with net cash of S$189m as at end June 2021 and the new Shanghai Plant 2, which still has ample room for expansion.

Valuation:

Lower TP of S$4.12 on PEG valuation. Our TP is reduced to S$4.12 (previously S$4.96), mainly due to a lower growth rate assumption for FY22F, as we have raised FY21F numbers but maintained FY22F forecasts. Maintain BUY. At current PE of 24.5x for FY22F, the group is trading at c.-2SD of its average PE since listing in October 2020. It is also closer to its peers’ average of 22.7x.

Where we differ:

We value the stock on a PEG methodology, vs. the conventional PE method, to capture the strong growth potential going forward.

Key Risks to Our View:

Ability to establish, maintain, and protect its proprietary intellectual property rights; resurgence of COVID pandemic further aggravating supply chain.