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Mon, Dec 14, 2020 – 1:39 PM
CGS-CIMB has commenced coverage of Nanofilm Technologies International with an “add” rating, given its proprietary technology and sole supplier status to major clients.
In a research note dated Friday, CGS-CIMB analysts William Tng and Darren Ong noted that the nanotechnology solutions provider is the only company offering filtered cathodic vacuum arc (FCVA) coating technology on a commercial scale. October 23 this year.
The technology offers functional and cosmetic advantages over conventional coating technologies and is also environmentally friendly, the analysts wrote.
They noted that Nanofilm’s technology allows it to perform vacuum coatings at room temperature on base materials such as ceramics and plastics, allowing it to penetrate new markets, since conventional technologies were previously not economical.
“Due to the superior benefits that its advanced in-house developed materials bring to its customers’ end products, Nanofilm has earned the status of a single source supplier among many of its customers, making the company an integral part of the process. manufacturing, “the analysts wrote, noting that the company is the sole coater for 90 percent of its major customers.
“We believe Nanofilm is poised to benefit from secular growth trends, such as the Internet of Things and the adoption of 5G, increasing the overall demand for coating and surface solutions.”
The brokerage said Nanofilm had commissioned a study that identified only three other companies globally involved in FCVA technology, with Nanofilm being the main provider of surface solutions based on its proprietary technologies. They added that Nanofilm’s FCVA technology creates a barrier to entry, with key patents expiring only from 2025 to 2039, allowing the company to realize long-term potential profitability and gain market share.
The analysts also visited Nanofilm’s plant in Singapore, which reaffirmed their “firm belief” in the growth of the company. The brokerage estimates that revenue will grow at around 34% compound annual growth rate (CAGR) during the financial year (FY) 2019 through FY2022. They also expect earnings per share (EPS) to increase similarly by 35% CAGR over the same period.
CGS-CIMB said conversations with factory supervisors and management have led them to infer that an increase in capacity is taking place, supported by strong demand from the portable and tablet segment. The brokerage noted that global smartwatch revenue had grown 20 percent year-on-year in the first half of 2020.
“We believe that strong demand for smartwatches will maintain the high growth momentum of its wearable device business,” the analysts wrote. They added that demand for products like the Microsoft Surface tablet may benefit Nanofilm, which is the sole coater for the tablet’s logos.
The brokerage has a price target of S $ 5.52 for Nanofilm, based on 35.3 times the EPS forecast for fiscal year 2022.
While Nanofilm currently trades at a higher price for earnings multiple compared to the simple average of its peers, analysts believe this could be due to a higher EPS CAGR projected for the next three years for the company.
They also believe the premium reflects Nanofilm’s sole coating supplier status to nine out of 10 of its top customers, and its proprietary, environmentally friendly coating technology.
Some of the downside risks identified by the brokerage were customer concentration and competition from larger and more notable companies globally.
Last week, UOB Kay Hian raised its target price for Nanofilm by 11 percent to S $ 4.52, while keeping its “call” option.
Nanofilm shares were trading at 4.18 Singapore dollars, as of 1:16 p.m. Monday, an increase of 7.2% or 0.28 Singapore dollars.
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