Brokers' take: Jefferies initiates with 'buy' on Nanofilm on entry into hydrogen energy business

NANOFILM Technologies MZH is expected to play a critical role in enabling the widespread adoption of hydrogen energy as it enters the business through its joint venture (JV) with state investment company Temasek, said Jefferies analyst Krishna Guha, as he initiated with a "buy" call on the company with a target price of S$6.50.

This comes after the nanotechnology solutions provider announced on Monday that it has entered into a definitive agreement with Temasek to invest up to S$140 million in a JV, Sydrogen Energy.

Nanofilm earlier said that it would contribute S$21 million in cash and transfer the group's hydrogen energy business and related intellectual property licences for a 65 per cent stake in Sydrogen. Temasek will contribute the remaining cash.

Mr Guha is optimistic about the partnership as Nanofilm will be able to focus on applying its proprietary Filtered Cathodic Vacuum Arc (FCVA) technology to help bring the cost of hydrogen fuel cells down while making them more durable.

Fuel cells and electrolysers require metallic bipolar plates to work, although they have been plagued by cost and durability issues.

To solve these issues, Nanofilm could apply its FCVA technology to develop protective carbon coatings similar to conductive diamond with special electrical and electro-chemical properties, said Mr Guha, adding that these properties would be critical to manufacturing cost-effective bipolar plates.

Nanofilm describes its FCVA technology as being able to perform vacuum-coated deposition at room temperature, enabling it to perform vacuum coating on a wider range of materials.

Furthermore, Sydrogen will invest in areas such as catalysts and hydrogen storage while also building an inclusive ecosystem through partnerships and technology aggregation beyond its in-house development.

Already, it has entered into a collaboration with Nanyang Technological University to license the latter's fuel cell-related intellectual property.

"Notwithstanding the early stages of commercialization, we think the JV will provide upside optionality for Nanofilm especially with current focus on energy transition," Mr Guha said.

Shares of Nanofilm were trading 0.6 per cent or S$0.04 higher at S$6.30 as at 2.40pm on Thursday.