Results Analysis: A decent set of 1H22 results despite challenging operating environment; within expectations
- Both 1H22 revenue and net profit registered y-o-y growth
- Lower margins, affected by COVID-related expenses
- Near term plans include expanding footprint to Japan; assessing new site for NFBU; JV for advanced batteries components for EVs in China
- No change in forecasts; maintain BUY call with TP of S$3.21. The group is well-positioned for growth with its nanotechnology solutions that are adaptable for use across many industries
Both 1H22 revenue and net profit registered y-o-y growth. 1H22 revenue saw a 15% y-o-y increase to S$111.3m, despite the challenging operating environment during the Shanghai COVID-19 lockdown that resulted in some loss of revenue of about S$8m. The group’s production capacity in Shanghai was hampered by a lack of labour and logistics flow. Net profit registered a slower y-o-y growth of 5% to S$18.8m, mainly due to higher costs and also net loss of S$1.2m incurred by Sydrogen. There were also COVID-19 expenses of S$2.5m that resulted from manpower & logistic restrictions due to the recent lockdown. Overall, revenue and net profit account for 37% and 27% of our full year forecasts respectively, inline with our expectations as 2H is typically a stronger half. Excluding the one-off impact from the recent lockdown, 1H22 is similar to 1H21 where revenue/net profit account for 39%/29% of full year numbers.
An interim DPS of 1.1Scts was proposed. (1H21: 1Sct).
|Segment||1H22 (S$m)||y-o-y change|
|Advanced Materials Business Unit (AMBU)||84.5||+11.3%|
|Nanofabrication Business Unit (NFBU)||7.3||+337%|
|Industrial Equipment Business Unit (IEBU)||19.5||+2.4%|
Lower margins, affected by COVID-related expenses. Gross margin of 44.9% for 1H22 is lower than the 46.1% in 1H21. It would have been 47.2% for 1H22 if COVID-19 related expenses were excluded, and the improvement from 1H21 would have primarily been due to the increase in sales and favourable product mix in 1H22.
Near term plans include expanding footprint to Japan; assessing new site for NFBU; JV for advanced batteries components for EVs in China. In 2H22, the group will be expanding its coating services footprint with a coating facility in Osaka, Japan. It is currently in the midst of qualifying its advanced materials solutions with a customer for application on ceramic products. The group is also proactively assessing potential locations to increase its production capacity for its NFBU.
With regards to JVs and M&A, to advance the application of its green solutions to replace electroplating, the group is in active discussion with a local strategic partner to set up a JV for the advanced batteries components for EVs in China.
Longer term growth strategy in place. The group has put in place its growth strategy in the following key strategic areas: 1) Geographical diversification and coverage. Countries like Japan, Singapore, Vietnam, USA, and Germany have been identified as strategic locations; 2) New segments with capability and product expansion; 3) JVs and M&As; and 4) R&D and engineering product development. The group is committed to allocate more than 5% of its total revenue for R&D and engineering expenditures.
Ample room for growth. The group is well positioned to capture a higher market share with the investments made in the new Shanghai Plant 2. Leveraging on its nanotechnology solutions, which are adaptable for use across a wide range of industries, we believe there is ample room for the group to gain new customers.
Improving supply chain situations. With the worst in supply chain disruptions likely behind us, barring any further lockdowns globally, the group is expected to rebound strongly. Nanofilm has not seen any indication of a cut in customer orders so far. The slowdown in orders for some of the consumer electronic products was mainly due to the semiconductor chip shortage.
Maintain BUY call with TP of S$3.21. No change in forecasts, as we are expecting a stronger 2H22. Maintain BUY call with TP of S$3.21, which is pegged to 30x PE, which is the average PE since mid August 2021, post the weak 1H21 results, on FY22F earnings. Will provide more updates, if any, after the results briefing in the morning.