Brokers' take: DBS initiates 'buy' on Nanofilm with S$6.22 target price
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DBS Group Research has initiated coverage on Nanofilm Technologies International with a "buy" rating and target price of S$6.22.
The target price is pegged to the mainboard-listed nanotechnology solutions provider's peers' average price/earnings-to-growth (PEG) ratio of 1.13 times.
The counter rose 4.09 per cent or S$0.19 on Thursday to S$4.84, implying an upside of 28.5 per cent.
Given Nanofilm's high-growth profile, DBS believes PEG ratio is an appropriate metric to capture growth potential ahead, it said in a research note on Thursday.
DBS analyst Ling Lee Keng noted that Nanofilm's differentiated and highly adaptable vacuum-coating technologies and processes set it apart from competitors.
The group's filtered cathodic vacuum arc (FCVA) coating technology is considered to be superior to conventional technologies when it comes to film density, surface adhesion, hardness, strength and repeatability, she said.
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The ability to perform vacuum coatings at room temperature is also environmentally friendlier and performable on more materials such as plastics, rubber and ceramics, on a commercial scale. This opens up new markets which conventional players cannot access, DBS said.
New industries that Nanofilm could enter include biomedical, aerospace and Internet of Things optics. It is also well-positioned to benefit from growth trends such as the rising usage of medical implants, the rapid adoption of electric vehicles, as well as high demand for both high-speed data processors and aircraft engine efficiency.
Moreover, Nanofilm is the sole supplier to many of its top customers. Its affordable, differentiated technology-based solutions entrenched the group in its customers' value chains, resulting in high customer stickiness, DBS said.
In December, CGS-CIMB initiated coverage on Nanofilm with "add" and a target price of S$5.52, given the latter's proprietary technology and sole supplier status to major customers.
CGS-CIMB's analysts noted that Nanofilm's FCVA technology creates a barrier to entry, with key patents expiring only from 2025 to 2039, allowing the company to derive potential long-term profitability and gain market share.
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