Hot stock: Nanofilm shares up 5.8% on brisk trading

SHARES of Nanofilm Technologies MZH surged steadily on Thursday (Dec 9) morning, rising some 5.8 per cent or S$0.23 to peak at S$4.22 as at 11.13am after some 2.1 million shares changed hands.

The counter later eased to close the day at S$4.10, higher by S$0.11 or 2.76 per cent, with more than 3.2 million shares traded.

No married deals were recorded throughout the day, according to ShareInvestor data.

DBS Group Research on Dec 9 upgraded its call on Nanofilm to "buy" from "hold" with a significantly higher price target of S$4.96 compared to S$4.05 previously.

The research house believes the worst is now over for Nanofilm, with earnings for FY2022 and FY2023 projected to grow at 44 per cent and 16 per cent, respectively.

Its new price target is pegged at a higher price-to-earnings growth (PEG) ratio of 0.92 times versus 0.75 times previously. Analyst Ling Lee Keng considers this to be still a discount to the stock's peers on FY2022 earnings estimates as the supply disruption situation is yet to be out of the woods, in her view.

"We believe Q3 FY2021 could be the worst quarter on the supply front, barring any worsening of the Covid-pandemic, as some pockets of improvement are already seen for some components," said Ling.

Ling is anticipating Nanofilm's share price to break out of its current S$3.60 to S$4.40 trading range with the anticipated recovery of the global supply chain - which was up until recently plagued from components and chip shortages which affected Nanofilm's fulfilment of orders.

"To address the shortage of chips, chip makers have planned for record levels of capex to boost production capacity. These new capacities are expected to come online in 2022 or 2023. Hence, we believe the chip shortage could extend into 2023, and Q2 2022 should see some broader-based improvement on the supply front," she said.

Highlighting the increasing adoption of nanofilm technology, she believes the company will see more broad-based improvement in Q2 of 2022, followed by normalisation in 2023.

The analyst expects Nanofilm's smartphone segment to register strong growth going forward, with its wearables and accessories segment to recover after a weak Q3 showing.

She is also anticipating more net product introduction from the group's different divisions to drive growth, particularly from the nanofabrication business unit as it recently commenced mass production of its first micro-lens array project for new-generation wearables.

"On the back of the anticipated improvement in the supply chain situation, Nanofilm would be in a better position to fulfil its order backlog... We expect some of the current orders to flow to next year given the current tight supply situation," concluded Ling.

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