JV could create a new revenue stream
- Nanofilm has announced a JV to coat battery-related components used in electric vehicles. The operations will be situated in Zigong, Sichuan, China.
- Nanofilm targets for the JV to reach mass production in 2024F and will also work with its JV partners to explore global market opportunities.
- Reiterate Add. We are positive on the potential for this JV to generate a new revenue stream for Nanofilm.
ApexTech JV – a potential new revenue stream
Nanofilm Technologies Int’l Ltd (Nanofilm) has announced its joint venture (JV) with Shenzhen Everwin Precision Technology co Ltd (Everwin, 300115 CH, NR, CP:CNY10.94) and Shanghai Hongshi Enterprise Management Partnership (Unlisted). The JV to be located at Zigong, Sichuan, China, will be named Sichuan Apex Technologies Co Ltd (ApexTech) and used to develop and provide vacuum coating solutions and coated products for battery components (bus bars, battery covers, battery connectors), packs and systems in electric vehicles and new energy storage applications (Advanced Battery Business) in China. The JV will have a registered capital of c.S$10.0m, with Nanofilm having a 60% stake. Initial production is targeted to commence in the first half of 2023F with plans to reach industrial-scale mass production by 2024F. Nanofilm expects capex to be between S$30m-50m for the JV over the next 3-5 years.
Targeting domestic China market for a start
For a start, the JV will be targeting the domestic China market via its JV partner, Everwin, and Nanofilm believes that its coating solution can be cost competitive to the existing electroplating solution. In addition, as electroplating is a pollutive process, it has been difficult for suppliers to obtain approval for capacity expansion. In its announcements, Nanofilm also shared that based on studies by the International Energy Agency, the total addressable market (TAM) of advanced batteries for electric vehicles in China is estimated to be above 6.5m units, amounting to US$79bn in 2023F and growing at a compounded annual growth rate of 10% to reach US$156bn in 2030F. Nanofilm will also work with its partners to address global market opportunities. Nanofilm believes the TAM for advanced batteries used in electric vehicles could grow from an estimated US$239bn in 2023F to US$782bn in 2030F.
Our TP (based on FY23F EPS forecast) is unchanged at S$3.05 (-1 s.d. P/E multiple over Oct 20 to Aug 22 of 23.3x) 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. Earnings potential from the JV is not modelled into our forecasts, for now as we await further progress on the JV.