A look at ESG
? Nanofilm released its second Sustainability Report (SR) on 20 May 2022.
? Some Environment, Social and Governance (ESG) data points for FY21 were
revealed and 2030 goals were set for certain ESG factors.
? Reiterate Add. Its Sydrogen (clean, renewable energy exposure) business
segment offers exposure to the E pillar in the ESG framework.
Second sustainability report released
According to Nanofilm’s 2021 SR released on 20 May 2022, Nanofilm owns more than 80
patents and trademarks, not including over 40 applications that are pending. The group
has more than 300 employees worldwide engaged in Research and Development (R&D)
and engineering and has achieved a daily turn-around capacity of more than 5.0m high
volume and high mix parts. This is Nanofilm’s second sustainability report. The Board, CEO
and senior management of Nanofilm oversee the management and monitoring of the
Economic, Environment, Social and Governance (EESG) aspects of the group. Nanofilm
has stated that sustainability has been and will always be an integral part of its strategy.
Nanofilm’s SR was prepared with reference to the Global Reporting Initiative, which is
widely accepted as a global standard for sustainability reporting. Nanofilm also set its
targets with reference to the United Nations Sustainable Development Goals.
2030 ESG goals
Nanofilm is working towards zero waste water discharge from its factories. In Shanghai
where the bulk of its manufacturing is located, the group has completed the installation of
reverse osmosis filtration systems to recycle the water used in production activities. The
group will work towards implementing this at its other production sites in the subsequent
years. We note that Nanofilm’s Industrial Equipment and Sydrogen business segments
support the Environmental pillar in EESG and Nanofilm has revealed EESG goals for 2030
(more overleaf).
Governance pillar can be improved
In our view, the Governance pillar of Nanofilm’s ESG can be improved. We note that, post
its listing, there have been three C-suite level resignations (Chief Executive Officer, Chief
Operating Officer and Chief Human Resources Officer). Of these three departures, its Chief
Human Resources Officer joined Nanofilm in Aug 2021 and will be leaving the company
on 24 Jul 2022.
Reiterate Add
We value Nanofilm at 23.5x P/E (-1 s.d. from its P/E multiple over Oct 2020-Jun 2022) on
our FY23F EPS forecast, leading to a TP of S$3.07. We reiterate our Add call given its
long term earnings growth prospects. Potential re-rating catalysts include new order wins
from customers and market share gains. Downside risks are high customer concentration
and persistent component shortages.