1Q22: Revenue In Line; Positive Outlook Despite Macro Challenges
Nanofilm’s 1Q22 revenue growth of 27% yoy was largely in line with our estimate of 30% yoy growth for 2022. AMBU, the largest segment, contributed 81% of revenue in 1Q22, with 3C products contributing 63%. Nanofilm highlighted that the market has returned to operating in a normalised cycle with the easing of supply chain disruptions. Despite several macro challenges, Nanofilm is positive and confident of Maintain HOLD and target price of S$2.72 (23x 2022F PE).
RESULTS
• In-line results with healthy yoy revenue growth. Nanofilm Technologies International
(Nanofilm) reported 1Q22 revenue growth of 27% yoy, largely in line with our 30% yoy
growth estimate for 2022.
• All BUs performing well and gaining traction. The largest segment, Advanced Materials
Business Unit (AMBU) contributed 81% of revenue in 1Q22, with 3C products contributing
63%. The growth is driven by communications and wearables as well as accessories, as the
market returned to operating in a normalised cycle with the easing of supply chain
disruptions. The other segments also grew mainly from the automobile segment. Nanofilm is
also seeing positive developments including fuel injection system, battery connectors and
other car parts. In addition, the precision engineering and printing & imaging segments
recorded growth in demand from the printing imaging, precision engineering tooling and
biomedical testing components. On the other hand, Sydrogen’s production line has been
qualified and on track for pilot production and maiden revenue contribution in 2H22. Also, it
has commenced pilot production of coating services.
• Nanofilm is positive and confident of 2022. Despite several macro challenges, Nanofilm
is positive and confident of 2022. Due to the COVID-19 situation in Shanghai, the flow of
logistics and labour have been affected, but Nanofilm continues its operations in a closedloop manufacturing arrangement. If the situation is prolonged, there may be impact on
Nanofilm’s operations. On the other hand, Nanofilm is controlling the impact of inflationary
pressures via solar panel installation and increase of automation to reduce direct labour
dependency.
STOCK IMPACT
• Focus on operational excellence. Nanofilm aims to focus on operational excellence to
increase its productivity and efficiency in order to mitigate inflationary pressures. To drive its
operational excellence, Nanofilm has embraced Industry 4.0 by adopting a disciplined
approach to upgrade its facilities into Smart Factories with investments in automation and
digitalisation systems to reduce labour requirements.
• R&D efforts in new exciting areas are intensifying with pathways to
commercialisation. These areas cover multiple transformational fields in: a) new classes of
advanced materials through greener and sustainable composites, b) engineered optics for
virtual reality and augmented reality to revolutionise the manner in which a person interacts
with the world, and c) hydrogen fuel cell technologies and components to enable
decarbonisation energy transition through hydrogen.
• In its first year of operation, Sydrogen recognised a net loss of S$1m in FY21 related to
operating expenses incurred in building its business fundamentals. Sydrogen will continue to
establish its foundation for technology and production capacity, and is on track to recognise
initial revenue in an automobile project in 2HFY22.
EARNINGS REVISION/RISK
• We maintain our earnings forecasts.
• Our earnings estimates indicate yoy earnings growth of 23%/23% for 2022/23.
VALUATION/RECOMMENDATION
• Maintain HOLD and target price of S$2.72. We value Nanofilm based on an unchanged
PEG of 1.0x (growth based on three-year EPS CAGR of 23% from 2021-24).
• Our target PE multiple of 23x 2022F PE is at a slight discount vs Nanofilm’s peers’ 25x
2022F PE.
SHARE PRICE CATALYST
• Better-than-expected ramp-up of the nanofabrication business.
• New application in the advanced material segment such as automobile (bi-polar plate
electrodes in fuel cells) and fast-moving consumer goods.