However, the analyst adds that she has lowered her target price estimate on the counter to $3.70 from $4.12 due to the recent weakness in the end market demand.
“We have switched the valuation methodology from a P/E growth (PEG) basis to a P/E basis, to be in line with other technology stocks in our coverage,” she says.
“Our new target price of $3.70 is pegged to 32x P/E on [Nanofilm’s] FY2022 earnings. This level is -0.5 standard deviation from the average since listing and also coincides with the P/E upon listing in October 2020,” she adds.
Ling has also lowered her earnings projections for the FY2022 and FY2023 by 5% each.
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Despite the cut in earnings estimates, Ling sees Nanofilm’s earnings growth of 22% and 17% for the FY2022 and FY2023 respectively as “still decent”. The current estimate is down from the previous growth estimate of 29% and 17% for FY2022 and FY2023 respectively.
“With investments made in the new Shanghai Plant 2, which is about double the size of Plant 1, and additional equipment to significantly boost the group’s long-term production capacity, Nanofilm is well-positioned for growth,” Ling says.
“Growth is supported by a strong balance sheet with net cash of $146 million as at end-December 2021 and the new Shanghai Plant 2, which still has ample room for expansion,” she adds.
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To this end, the analyst remains “optimistic” that the group is “well-positioned for growth” with the multiple growth engines in place.
To Ling, Nanofilm’s ability to “establish, maintain, and protect its proprietary intellectual property rights” is a key risk.
The resurgence of the Covid-19 pandemic, which may further aggravate the supply chain, is another such risk.
As at 4.06pm, shares in Nanofilm are trading 1 cent lower or 0.42% down at $2.38.
