Profit warning issued
- Nanofilm issued a profit warning today. It expects 1H23F revenue to decline by 34% yoy to S$73.0m.
- Nanofilm also expects a 1H23F net loss of S$8.0m due to weak customer demand and ongoing expansion costs for new growth initiatives.
- Nanofilm expects 2H23F revenue to be better than 1H23F’s. The company also expects to remain profitable for FY23F.
- The company has also deferred its previous FY25F revenue/net profit targets and said it will provide an update when there is better visibility.
- 1H23F results will be released on 10 Aug 2023. Reiterate Reduce.
Nanofilm: 1H23F loss expected to be S$8.0m
? Nanofilm Technologies Int’l has issued a profit warning this evening (10 Jul 2023), anticipating that its 1H23F revenue could decline by c.34% yoy to S$73.0m, while its net loss for the first half of the year could be S$8.0m.
? Nanofilm attributed the weak 1H23F financial performance to: a) slower-than-expected recovery in end-consumer sentiment linked to macro challenges arising from inflationary pressures, higher interest rates and ongoing geopolitical tensions, which reduced consumer discretionary spending and impacted demand, b) weaker-than-expected post-reopening recovery in China in 1H23F, c) reductions in capital expenditure by customers due to more cautious market sentiment, which had impacted the group’s Industrial Equipment Business Unit (IEBU), and d) increased operating expenses as the group invested in long-term business initiatives to drive future growth, including costs related to new facility set-ups in Zigong and Huizhou in China, ongoing business building expenses related to Sydrogen, and higher depreciation expenses from capex in its new production facilities.
? To mitigate the impact of the challenging business environment, Nanofilm has implemented cost reduction measures.
? Nanofilm expects 2H23F revenue to be higher than 1H23F’s and for the full year FY23F to remain profitable.
? Nanofilm also highlighted that the key risks to its 2H23F financial performance were: a) worsening global inflation and the possibility of a global recession, b) further escalation of geopolitical tensions between the US and China, c) worsening of consumer demand, d) customers continuing to tighten capex spend (for its IEBU), and e) re-emergence of a global pandemic that could affect the supply chain.
? Given the challenging and unpredictable business environment, Nanofilm has also deferred its previous FY25F revenue/net profit targets of S$500m/S$100m. Nanofilm will provide an update on these targets when it has better visibility.
? The company will release its 1H23F results on 10 Aug 2023.
Reiterate Reduce
? In our earlier report on 21 Jun 2023, we raised the possibility of a 1H23F loss for Nanofilm, given the weak economic conditions; we had also reduced our FY25F earnings forecast given the uncertain economic outlook.
? We reiterate our Reduce call on Nanofilm with an unchanged TP of S$1.13, still based on a CY24F P/E of 14.3x (average of its global and Asian peers).
? Upside risks include new order wins from customers, as well as faster operational progress at JVs ApexTech and Sydrogen Energy in FY24F leading to higher net profit contributions, and strong demand upturn from customers.
? Potential de-rating catalysts are high customer concentration, and higher operating costs as it expands into other countries and new businesses.
