Analysts have maintained their bearish views on Nanofilm Technologies International after the company's most recent earnings missed most of their expectations.
For its FY2024, the company, which provides coating services for both consumer and industrial products, reported higher revenue of $204.3 million, which was a gain of 15% over the preceding year ended Dec 31 2023. The increase could be attributed to new customers placing new orders in a seasonal peak period. Contributions from a recent acquisition helped lift the topline as well.
However, earnings in the same period, while up 147% to $7.7 million, missed expectations, due to higher-than-expected depreciation expenses.
Nanofilm is "cautiously optimistic" about its recovery this current FY2025.
"However, we are mindful that the fixed costs could remain elevated given Nanofilm’s continued expansion moves," state UOB Kay Hian analysts John Cheong and Heidi Mo, who have not only kept their "sell" call but even cut their target price from 68 cents to 50 cents.
Ada Lim of OCBC Investment Research is not as bearish with her "hold" call. She expects the company to enjoy continued recovery for its key consumer segment, with new customers coming on board, along with new product lines in accessories and wearables likely in the coming 2QFY2025 onwards.
Citing the management, Lim says the company should see better sales of its industrial equipment this year.
"All things considered, we roll forward our valuations and finetune our assumptions, taking into account Nanofilm’s recent acquisition of EC Europ Coating and MC Europ Coating to expand its footprint in Europe," says Lim, referring to two Europe-based coating companies bought recently.
However, Lim is keeping a wary eye and stands ready to lower her estimates given the ongoing macroeconomic and geopolitical uncertainties which could lead to volatile end-consumer demand.
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Lim's new fair value is 73.5 cents, down from 76 cents.
Similarly, Ling Lee Leng of DBS Group Research is flagging better business for the consumer segment, with "robust" growth from an existing key customer and new ones. Ling sees growth in other business segments as well.
For now, Ling is keeping her "hold" call but with a reduced target price of 72 cents from 75 cents previously as she now expects lower earnings for the current FY2025 and the coming FY2026.
"Although several initiatives are underway, they are not yet at full capacity, and margins remain suboptimal due to high costs," says Ling. Her new target price of 72 cents is pegged to 22x FY2025 earnings.
William Tng of CGS International, meanwhile, has kept his "reduce" call and his already lower-than-consensus price target of 63 cents, which he believes has already priced in possible earnings recovery for FY2025 and FY2026.
Tng says there is a risk that 1HFY2025 could potentially be in the red again and that could "deter" investors from re-looking at this counter until 2HFY2025.
Given the slow pace of earnings recovery, Tng values Nanofilm at 14.8x FY2026 earnings, a valuation multiple that is -1 sd multiple of the FY2021 and FY2025 range.
For Tng, upside risks will come from new order wins and faster progress from other areas such as Sydrogen, a joint venture with Temasek.
Nanofilm shares changed hands at 68 cents as at 4.25 pm, down 2.86%.
