Brokers' take: Citi upgrades to 'buy', DBS maintains 'buy' on Nanofilm on projected growth

DBS Research maintains its "buy" on Nanofilm Technologies International, while Citi Research upgrades its rating from "neutral" to "buy". The brokerages, in their separate research reports on Friday (Jan 21), both expect the company to grow in FY2022.

DBS analyst Ling Lee Keng lowered the target price on the group to S$4.12 from S$4.96 on the back of a lower growth-rate assumption for FY2022 as earnings for Q4 FY2021 went up. FY2022 earnings are, however, expected to hold steady. Expected earnings for FY2021 were raised by 12 per cent; numbers for FY2022 and FY2023 are projected to remain unchanged, with DBS is still awaiting more visibility on the recovery of the supply chain.

Citi analyst Jame Osman lowered Nanofilm's target price to S$3.92 from S$4.08 to account for an increase in the estimated weighted average cost of capital from 6.8 per cent from 6.9 per cent, reflecting a higher risk-free rate assumption. It kept expected earnings for FY2021-23 unchanged.

Shares of Nanofilm were trading lower by 1.3 per cent or S$0.04 to S$2.95 at 4.42 pm.

DBS' Ling maintains "buy" on the stock because the group's Q4 FY2021 saw a strong pickup, both on a year-on-year and quarter-on-quarter basis. Demand continues to remain strong, and he believes it will spill over into the following financial year.

"Overall, the group is projected to report a positive growth in earnings of 8 per cent for FY2021, despite expectations of higher costs, including one-off and higher operating costs as the group expands," the analyst added.

Although supply disruption issues still persist, Ling understands that it is more stable now and sales are delayed - but not derailed. His expectations for growth in 2022 also come with Nanofilm's strong balance sheet, which had net cash of S$189 million as at end June 2021 and the official certification of its new Shanghai Plant 2, which still has room for expansion.

Likewise, Citi Research also sees a "clearer runaway to growth" for Nanofilm in FY2022. Osman projects Nanofilm's short-term earnings momentum to pick-up in FY2022 and is optimistic about the group's long-term business growth.

The analyst highlighted that new product launches and reduced supply-chain risks from Apple, Nanofilm's key customer, present good opportunities for production ramp up at the company's new Shanghai Plant 2 in FY2022.

With Nanofilm's growing track record with Apple and a total available market of US$24.3 billion, Osman also sees potential for commercial application of Nanofilm's coating solutions gaining traction in new domains.