Foray into Europe
- On 21 Dec 2023, Nanofilm announced the acquisition of German-incorporated AxynTec for c.S$9.9m.
- Nanofilm aims to build a bigger presence in Europe via this acquisition.
- We reiterate our Reduce call on Nanofilm as re-rating catalysts have yet to emerge.
Acquires a foothold in Germany
On 21 Dec 2023, Nanofilm announced the acquisition of German-incorporated AxynTeC Dünnschichttechnik GmbH (AxynTeC). AxynTeC is a professional thin-film coating solutions provider based in Augsburg, Germany. AxynTeC also has expertise in pulsed laser deposition, and provides services such as contract manufacturing, engineering development and supply of coating equipment. AxynTeC’s products/solutions are used by existing European customers in the fields of medtech and non-consumer electronics. Nanofilm sees AxynTeC’s proprietary Diamond-Like Carbon (DLC) equipment and DLC advanced materials as being complementary to its Physical Vapour Deposition (PVD) equipment and coating portfolio. Coupled with available factory space for Nanofilm to deploy additional equipment, this would allow Nanofilm to enter the EU market more swiftly, according to management.
Aiming for bigger Europe presence
According to Nanofilm’s press release issued on 21 Dec 2023, Nanofilm has set up a European entity, Nanofilm Technologies Europe BV, in the Netherlands to accelerate the group’s growth and to better serve its customers in Europe. According to the same press release, Nanofilm is pursuing various options to further expand its business in Europe.
Smart watch patent dispute another hurdle to FY24F performance
According to technology news portal, theverge.com (22 Dec 2023), Nanofilms’ major customer will not be selling its advanced smart watch models in the US after an import ban imposed by the US International Trade Commission for patent infringements. We estimate that smart watch-related components could account for 10-20% of Nanofilm’s FY23F revenue. As at 27 Dec 2023, BBC reported that an emergency request by this major customer to the US Court of Appeals proved successful in getting the ban lifted temporarily.
Reiterate Reduce as re-rating catalysts have yet to emerge
We keep our Reduce call on Nanofilm as we expect a challenging FY24-25F business environment. Our TP remains at S$0.75 based on FY25F P/E of 12.1x, -2 s.d. below its average P/E in FY21-23. Upside risks include new order wins from customers as well as faster operational progress at JVs ApexTech and Sydrogen Energy in FY24-25F leading to higher net profit contribution and strong demand upturn from customers. Potential derating catalysts are high customer concentration, and higher operating costs as it expands into other countries and other businesses.
