Results First Take: Nanofilm – 9M23 revenue slightly below expectations; 3Q23 profitable.
- 3Q23 revenue declined 19% y-o-y but up 37% q-o-q, driven by peak period for 3C and improvements in inventory rebalancing.
- GP margin improved to over 40% in 3Q23, up from 32% in 1H23, with ongoing efforts in cost efficiency.
- Paving the way for longer term growth with expanding geographical footprints – Europe (Germany), India and Vietnam.
- Expect market volatility to continue in 4Q23 though efforts to drive margins recovery remain in place.
- We currently have a FULLY VALUED call with TP of S$0.88.
3Q23/9M23 Business Update
Revenue slightly below expectations. Nanofilm reported 3Q23 revenue of S$55m, up 37% q-o-q, mainly driven by the seasonal peak period for the Computer, Communication and Consumer (3C) segment and improvements in inventory rebalancing, but this was still 19% lower on a y-o-y basis. Equipment sales remained weak as the group’s customers continue to be cautious about their capital expenditure on the back of the macro uncertainties.
For the 9M23 period, revenue of S$128m was 29% lower y-o-y. The Advanced Materials Business Unit (AMBU) contributed approximately 81% to the 9M23 revenue, while the Nanofabrication Business Unit (“FBU) and Industrial Equipment Business Unit (IEBU) each contributed approximately 9% respectively. Overall, 3Q23/9M23 revenue account for 28%/64% of our forecasts, slightly below expectations.
GP margin improving; 3Q23 profitable. Gross profit margin in 3Q23 improved to over 40%, up from 32% in 1H23 and 48.7% in 2H22, mainly due to the ongoing efforts in cost efficiency. Gross profit surged 76% q-o-q due to the improvement in operational performance in 3Q23 but was down 28% y-o-y due to the group’s inability to enjoy more economies of scale benefits as a result of lower production volumes in the current challenging environment. 3Q23 operating expenses saw a 10% reduction compared to the previous year but up 5% q-o-q. No other details on earnings were provided in this business update, except that 3Q23 was profitable.
Our View
Expect market volatility to continue in 4Q though efforts to drive margins recovery remain in place. 4Q23 could still be volatile given that the inventory destocking trend is still in place though demand should still be decent as 2H23 is a peak season for the 3C segment. Coupled with the on-going efforts to improve margins, we expect FY23 to be profitable. The group has put in place various initiatives to drive long term growth but significant contribution can only come in 2025 and beyond. Though green shoots are expected to gradually take shape, the progress for some of the new initiatives such as the JV for EV battery coating has been slower due to customers having excess production capacity on the back of the current market weakness. Overall, it would take time for the group to enjoy higher operating leverage and drive profitability. We have a FULLY VALUED call with TP of S$0.88. More updates after briefing tomorrow.