Nanofilm Technologies - DBS Research 2024-02-27: Margin Pressures Remain; FY23 Below Expectations Despite 2H23 Showing Recovery

• 2H23 saw a recovery in business performance compared to 1H23, with NanoFilm Technologies (SGX:MZH) registering net profit S$10.8m (-56.9% y-o-y) on the back of a 17.6% decline in revenue to S$103.9m. The recovery was led by 3C (Computer, Communication, Consumer) recovery from improving inventory rebalancing and new end-customers’ product launches.

FY23 net profit still below expectations.

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• Overall, for FY23, NanoFilm Technologies's net profit of S$3.1m (-92.8% y-o-y) was still below our expectations, even though the revenue of S$177.0m (- 25.4% y-o-y) was slightly above our estimates.

Gross margin improved but remains below the optimal level.

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• Gross profit margin for FY23 was 37.0% – vs 46.9% in FY22 – as operational cost savings from on-going cost optimization efforts were offset by the increase in material cost due to product mix, with higher material contents and other costs.

Slower-than-expected progress for the EV battery coating division.

• Apextech's green plating business is facing challenges from prolonged qualification processes, sluggish industry growth, and slow customer acceptance of new technology.
• Industrial equipment segment could still be weak, as one of the product lines is reaching market saturation, which resulted in fewer growth opportunities while sales in China remained slow. Some projects are at various sales stages, however the gestation period could be long, and hence this segment could stay weak in the near term.

Outlook for Nanofabrication unit brighter, with projects at mass production.

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Lee Keng LING DBS Group Research | https://www.dbs.com/insightsdirect/ 2024-02-27 SGinvestors.io

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