Well positioned for growth
- Strong rebound in 2H21; FY21 results in line
- Room for improvement in margins, as production is scaled up with new Plant 2
- Well positioned for growth; supply chain disruptions shifted growth momentum to 2022
- No change in forecasts; maintain BUY with S$4.12 TP
Investment Thesis
Supply chain disruptions shifted growth momentum to 2022. After an eventful year in 2021, plagued by supply chain disruptions, increased expenses relating to the new Shanghai Plant 2, and the resignation of key executives, which dented investor confidence, we are hopeful that the group can deliver stronger growth in 2022. With investments made in the new Shanghai Plant 2, which is about double the size of Plant 1, and additional equipment to significantly boost the group’s long-term production capacity, Nanofilm is well positioned for growth.
Strong earnings ahead. With the worst in supply chain disruptions likely behind us, we expect a strong earnings growth of 29% in FY22F, followed by another 17% in FY23F. 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:
TP of S$4.12 on PEG valuation. Our TP of S$4.12 is still based on the PEG valuation method, pegged to peers’ average of 1.16x. At the current PE of 24.2x for FY22F, the group is trading at c.-2SD of its average PE since listing in October 2020. Maintain BUY.
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:
The company’s ability to establish, maintain, and protect its proprietary intellectual property rights, and the resurgence of the COVID pandemic further aggravating the supply chain.