Brokers’ take: Analysts cut Nanofilm target price on dampened earnings estimates

ANALYSTS have lowered their target prices on mainboard-listed Nanofilm Technologies : MZH 0% in view of the expected slowdown in demand, which will weaken its earnings prospects in the near term.

However, CGS-CIMB and DBS have maintained their “add” and “buy” calls respectively, remaining positive on Nanofilm’s long-term growth prospects.

CGS-CIMB cut the nanotechnology solutions provider’s target price to S$3.07 from S$3.50 in a Thursday (Jun 30) report. This represents an upside of 31.8 per cent from the share price as at 11.44 am on Friday, where it was unchanged at S$2.33.

Overall, CGS-CIMB cut its FY22-24 earnings per share (EPS) forecasts by 12.8 to 15 per cent.

CGS-CIMB analyst William Tng said that suppliers such as Nanofilm are grappling with higher input costs. With rising inflation concerns, there is also a risk of a decline in consumer spending, especially on discretionary consumer tech-related products, which accounted for 63 per cent of Nanofilm’s revenue in the first quarter of this year, he added.

In a Wednesday report, DBS analyst Ling Lee Keng similarly cited recent weakness in end-market demand for smartphones, wearables and PCs as a possible contributor to lowered earnings projections.

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The analysts predict that Nanofilm will experience an H2-loaded year, as it suffered from supply chain disruptions at its main production site in Shanghai due to China’s Covid-19 lockdowns in the April to May period.

Tng said that Nanofilm is operating in a “challenging operating environment”, which informed its lower S$3.07 target price, 23.5 times its price-to-earnings (PE) ratio on CGS-CIMB’s FY23 EPS forecast. In the long term, he remains positive on Nanofilm’s growth prospects.

DBS switched its valuation methodology for Nanofilm to align with its coverage of other tech stocks. Its new target, calculated on a PE valuation, was lowered to S$3.70 from S$4.12, which was calculated on a PE-to-growth basis. DBS’s new target price is pegged to 32 times PE on FY22 earnings.

Ling, while pulling back on earnings projections for FY22 and FY23 by 5 per cent each, remained optimistic on Nanofilm’s “still decent” earnings growth, strong balance sheet and room for expansion in its investment in its new Shanghai plant.

“With investments made in the new Shanghai Plant 2, which is about double the size of Plant 1, and additional equipment to significantly boost the group’s long-term production capacity, Nanofilm is well positioned for growth,” she said.