The implied revenue and earnings of $237 million and $44 million is below both hers and the market’s consensus estimates. Ling was expecting revenue of $243 million (-1% y-o-y) and net profit of $54 million (-13% y-o-y) for FY22.
The company got to bear with higher operating costs with increased headcount. Capital expenditure was higher too. The pandemic-related pandemics in China also led to both disruptions in its operations, while weakening end demand.
According to Ling, with the guidance from Nanofilm, it implies a lower net margin of 18.6% for FY2022 versus 25.2%.
She expects margins to remain weak in the current 1FH2023 as Nanofilm is still obliged to invest for future growth, bear higher depreciation costs, labour and other overheads.
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“We are hopeful that margins could improve in 2H23 on economies of scale as revenue for 2H is typically higher than 1H,” writes Ling in her Feb 3 note.
Potential positive catalysts, according to Ling, includes the recovery in supply chains, specifically, operations in the Zhengzhou factory, which is known to be a key production site of Apple’s iPhones and in which Nanofilm’s coating services are used.
Other possible catalysts include contributions from the various energy joint ventures Nanofilm has, as well as entering new product categories and business segments.
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Ling notes that while Nanofilm has lowered its FY2022 numbers, there is no change to its FY2025 target of generating $500 million in revenue and earnings of $100 million.
Her revised target price of $1.33 is pegged to a PE of 16x, which is around -1.5SD of its average PE, on blended FY23F/FY24F earnings.
Separately, CGS-CIMB's analysts have kept their "hold" call on this stock, but with a slightly trimmed target price of $1.39 from $1.40.
William Tng and Izabella Tan, in their Feb 3 report, have also observed that the company has maintained its 2025 guidance. However, the "path" towards the target will not be "linear".
They have lowered Nanofilm's FY2022 earnings estimate by 7.5% to be in line with company's guidance. For the current FY2023, given "global macroeconomic headwinds and cautious outlook" from Nanofilm's unnamed major customer, Tng and Tan have also lowered their earnings estimate by 16.5% qas well.
For now, they've remained optimistic that the company will report "stronger" earnings recovery for FY2024 as macro economic conditions improve.
Nanofilm is slated to report its FY2022 numbers on Feb 21.
As at 11.27 am on Feb 6 Nanofilm shares traded at $1.32, down 7.04% for the day and down 55.25% over the past year.
