Heading into seasonally stronger 2H
- 1H22 revenue was 4.2% above our S$106.8m forecast. 1H22 revenue formed 39.0%/36.0% of our/Bloomberg consensus’ full-year forecast.
- 1H22 net profit was 11.1% below our S$21.2m forecast. Adding back S$2.1m of Covid-19 related expenses, net profit would have been S$20.9m.
- We lower FY22F EPS by 3.1% to reflect the one-time Covid-19 expenses. TP is reduced slightly to S$3.05, reiterate Add.
1H22 results: affected by lockdowns in Shanghai
1H22 revenue rose 15.2% yoy to S$111.3m with all business segments registering yoy growth. 1H22 revenue was 4.2% above our S$106.8m expectation and formed 39.0/36.0% of our/Bloomberg consensus’ full-year forecasts. 1H22 net profit increased 5.1% yoy and was 11.1% below our S$21.2m forecast. 1H22 net profit formed 27% of our full-year forecast and was 25% of Bloomberg consensus’ full-year forecast (below expectations). Gross profit margin was lower at 44.94% in 1H22 versus 46.10% in 1H21. Nanofilm quantified that due to the Covid-19 lockdowns in Shanghai, the group lost S$8.0m in revenue. Nanofilm also incurred a one-time S$2.1m expense to keep production running during the Covid-19 lockdown in Shanghai in 1H22. Management said operations in Shanghai have now normalised. A higher 1.1 Sct DPS (1H21:1.0 Sct) was declared.
2H22 outlook: seasonally stronger 2H trend intact
Management also guided the seasonally stronger 2H trend will remain intact in FY22F. Over FY20-21, on average, 2H accounted for 70.0% of full-year revenue. Its major customer accounted for 56% of 1H22 revenue and yoy, the list of parts that this customer is sending to Nanofilm for coating has grown. We do not expect further major capex in 2H22F but expect Nanofilm to continue to invest in human talent to grow its business. The company highlighted that as a near-term objective, it is in active discussions with a partner in China to set up a factory (on a rental basis) to coat components for batteries used in electric vehicles.
Recommendation: reiterate Add given multiple growth paths
We lower our FY22F EPS by 3.1% to reflect the Covid-19 one-off expenses and raise FY23-24F EPS by 0.3% as share buybacks by the company has reduced its outstanding number of shares. Our TP (based on FY23F EPS forecast) is reduced slightly to S$3.05 as the -1 s.d. P/E multiple over Oct 20 to Aug 22 has fallen slightly to 23.3x (previously, we used 23.5x P/E multiple which was the -1 s.d. P/E multiple over Oct 20-Jun 22). Rerating catalysts include new order wins from customers and market share gains. Downside risks are high customer concentration and the repeat of Covid-19 lockdowns in Shanghai.