- Expecting 34% y-o-y drop in revenue and net loss for 1H23
- Weak demand and high operating expenses are the key drag to weak 1H23
- Defer 2025 revenue and net profit guidance given the challenging environment; various initiatives to drive growth still in place
- Maintain FULLY VALUED call with TP of S$1.00
What’s new:
Expecting 34% y-o-y drop in revenue and net loss for 1H23; defer 2025 revenue and net profit guidance. Nanofilm anticipated that the group will report a revenue decline of approximately 34% y-o-y to S$73m and a net loss of approximately S$8m for 1H23, though EBITDA is still expected to be positive. The weaker 1H23 is mainly due to :- 1) slower than expected recovery in end-consumer sentiment, especially for consumer electronics; 2) softer than anticipated post-reopening recovery in China; 3) reduction in customers’ capital expenditure and 4) increase in operating expenses. Given the current challenging and unpredictable business landscape, Nanofilm has deferred the attainment of its 2025 targets of S$500m in revenue and S$100m in net profit to a later time when there is better visibility.
Our view:
2H23 to be better than 1H23; no change to our recently revised forecasts. Overall, the group expects revenue for 2H23 to be higher than 1H23, and to be profitable for the whole of 2023. 2H23 recovery is intact, but the order momentum is slower than anticipated, as demand for consumer electronics is still fragile. We have cut our earnings forecasts last month by a steep 58% and we are now expecting the group to deliver net earnings of S$20.6m for FY23F (-53% y-o-y), on the back of a 16% decline in revenue to S$199m. Our forecast implies revenue of S$126m for 2H23, similar to 2H22. Net earnings are also similar to 2H22 as there was a COVID-19 expenses of S$2.5m in 2H22 which should not occur in 2H23. Maintain FULLY VALUED and TP of S$1.00. More details to be disclosed in the 1H23 results to be released on 10 August 2023.
Weak demand and high operating expenses are the key drag to weak 1H23. A slower-than-expected recovery in end-consumer sentiment, especially for consumer electronics, is linked to macro challenges around inflationary pressures, higher interest rates and ongoing geopolitical tensions. This has impacted the group’s 3C (Computer, Communication and Consumer) segment, which accounts for about 50% of the total group revenue, and also the Nanofabrication unit. The reductions in capital expenditure by customers due to more cautious market sentiment, has impacted the group’s Industrial Equipment unit. The increased operating expenses is mainly due to the group’s investments in long-term business initiatives to drive future growth, including costs related to new facility set-ups in Zigong and Huizhou, China, ongoing business-building expenses related to Sydrogen, as well as higher depreciation expenses associated with capital investments in new production facilities.
Initiatives to drive longer term growth in place despite deferment of 2025 guidance. Despite the deferment of the 2025 guidance, the group remains committed to the various strategic initiatives put in place, including the entry into the energy segment (hydrogen fuel cell, advanced EV battery, and solar cell) and expansion into Vietnam with a mega site similar in size to its China facilities, to drive growth ahead.