Nanofilm Technologies - FY22 Possibly First Net Profit Decline Since IPO
- Post NanoFilm's announcement on its 9M22 business update on 2 Nov 2022 –
- Apple Inc (a key customer of NanoFilm) issued a press release on 6 Nov 2022 stating that COVID-19 restrictions have temporarily impacted its iPhone 14 Pro and iPhone 14 Pro Max assembly facility in Zhengzhou, China, and that the facility is currently operating at a significantly reduced capacity. Apple said that although it continues to see strong demand for its iPhone 14 Pro and iPhone 14 Pro Max models, it now expects lower shipments than previously anticipated.
- Foxconn Technology, a key supplier to Apple, on 10 Nov 2022 commented in its 3Q22 results release that the group has lowered its outlook for 4Q22 due to the pandemic’s impact on its Zhengzhou campus operations in China.
- With the benefit of the read-throughs from Apple and Foxconn and re-looking at NanoFilm’s 9M22 business update, where the company commented that the near-term operating environment remains challenging, we think that our previous assumption that FY22F net profit could be flat y-o-y is not likely to hold. We now think FY22F net profit could decline 11.6% y-o-y to S$55.0m before recovering in FY23F. This will be NanoFilm’s first net profit decline since its IPO in 2020.
- We have reduced FY22-24F revenue forecasts for NanoFilm by 2.4%-4.0% (supply chain disruptions, cautious outlook from NanoFilm’s other customers) as macro-economic concerns gather pace, leading to a 3.9%-12.0% decrease in our net profit forecasts.
- Valuation-wise, with the uncertain macroeconomic outlook in FY23F, we think NanoFilm’s valuation will be driven by our FY21-25F EPS CAGR expectations as investors will refrain from paying a premium valuation till higher EPS growth returns. Hence, we now value NanoFilm at a P/E-to-growth ratio of 1.0x (i.e. 12.6x FY23F P/E, as our FY21-25F EPS CAGR forecast is 12.6%), resulting in a lower S$1.37 target price. We reiterate our HOLD call on NanoFilm.
- Previously, we opined that investors would be willing to pay 15.6x FY23F P/E (a 10% premium, accorded for NanoFilm’s patented technology, to the 14.2x CY23F sector P/E of its Asian peers, as of 3 Nov 2022).
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
William TNG CFA CGS-CIMB Research | Izabella TAN CGS-CIMB Research | https://www.cgs-cimb.com 2022-11-16 2022-11-16
Previous report by CGS-CIMB:
2022-11-03 Nanofilm Technologies - Issued FY25 Targets; Downgrade To HOLD
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