CGS-CIMB has downgraded its call on Nanofilm Technologies from "add" to "hold" while slashing its target price to S$1.78 from S$3.05 previously, amid a slowing economic outlook and supply chain disruptions in China.
This comes a day after Nanofilm, which specialises in advanced materials and coatings, reported a 10 per cent year-on-year increase in revenue for the nine months ended Sep 30.
In a report on Thursday (Nov 3), CGS-CIMB analysts valued the company at a price to equity (PE) multiple of 15.6 times, inclusive of a 10 per cent premium accorded to Nanofilm's patented technology. While the valuation is down from the previous multiple of 23.3 times, this is still above the 14.2 times 2023 sector PE multiple of the stock's Asian peers.
The analysts noted that lockdowns in China have continued to disrupt supply chains, affecting its advanced materials business unit. Meanwhile, in the company's industrial equipment business unit, customers have "turned cautious", and are delaying or cutting capital expenditure amid increasing macro uncertainties.
Given these challenges, the analysts said earnings growth for Nanofilm may only resume in FY2023. Forecast revenue for the group in FY2022 was lowered to S$273.4 million from S$288.7 million, and forecast earnings per share to S$0.095 from S$0.104.
Commenting on Nanofilm's targeted profit from business operations excluding any gains or losses from divestments, revaluations and impairments (Patmi) of S$100 million by FY2025, the analysts said they are expecting a Patmi margin of 20 per cent.
Based on their observations, this is lower than the average of 25.8 per cent in FY2020 to FY2021, and accounts for ongoing investment costs to drive the group's new ventures.
Shares of Nanofilm were trading 13.9 per cent or S$0.24 lower at S$1.49 as at 10.50 am on Friday.