High Potential Earnings Contribution From Entry Into The EV Battery Industry
Nanofilm has formed a JV with Shenzhen Everwin to provide coating services for EVs’ battery components. Shenzhen Everwin currently supplies electroplating services to the top players in the EV industry such as CATL and Tesla. The JV aims to commence production in 1H23 and mass production by 2024. We estimate that the JV could generate at least S$200m additional revenue in 2024 (27% increase), based on the EV segment revenue of Shenzhen Everwin in 2021. Maintain BUY. Target price: S$2.72.
• Nanofilm formed a JV with Shenzhen Everwin to provide coating services for EVs’ battery components. Nanofilm Technologies International (Nanofilm) announced that it has formed a JV with Shenzhen Everwin (SZE 300115) to address the coating needs for electric vehicles’ (EV) battery components in China. We understand that Shenzhen Everwin currently supplies electroplated battery parts to the top players in the industry including CATL and Tesla. The JV aims to replace electroplating processes which are harmful to the environment and has been facing more government restrictions with Nanofilm’s proprietary coating solutions. The main battery components that the JV will be coating include busbars, battery housing and connectors.
• Target to start production in 1H23 and reach mass production by 2024. The JV aims to start production in 1H23 in Sichuan, China and reach industrial-scale mass production by 2024. The JV will be initially targeting China’s market, with future plans to expand to the international market. Total capex for the JV is estimated to be S$30m-50m. According to the International Energy Agency (IEA), the total addressable market of advanced batteries for EVs in China is estimated to be above 6.5m units, amounting to US$79b in 2023 and is growing at a compounded annual growth rate of 10% to reach US$156b in 2030.
• JV is expected to be profitable in 2023 and contribute significantly in 2024. We understand that the JV will be profitable in the initial production phase given that there is already an existing market for the product. Shenzhen Everwin’s currently outsourced electroplating process will be replaced by Nanofilm’s coating processes. As of 2021, the revenue for Shenzhen Everwin’s EV segment is around S$200m. This could be a good reference point for the minimum potential revenue for the JV. On the other hand, assuming that the JV is able to capture 2m unit of batteries which requires 150 units of busbars each, this is equivalent to 300m units of busbars. Assuming S$1-2 revenue for the coating of each busbar, this could generate S$300m-600m worth of revenue, which is more than double of Nanofilm’s revenue for 2022-24. However, we maintain our financial forecasts for now pending further development of the JV.