In her Oct 22 note, Lim says that her fair value is pegged to a target FY2026 PE of 23x, which is a quarter of a sd above the company’s historical average since its listing.
In the company's upcoming 3QFY2025 business update, Lim expects the company to report results showing less pronounced seasonality this year due to earlier ramp-up of new projects, while operational efficiencies may still drive improvements in gross profit margins going forward.
The demand outlook remains uncertain but at its 1HFY2025 briefing, Nanofilm "sounded optimistic" about maintaining growth across its business units. Even so, near-term earnings recovery may be gradual, she warns.
Lim believes that Nanofilm, having been included in a new iEdge Singapore Next 50 Index, is one of the potential beneficiaries of the market-boosting measures.
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Lim observes that Nanofilm’s performance is highly correlated to demand for its customers’ products and as such, the past few years have been challenging amidst a digital downturn, sticky inflation, and supply chain disruptions.
Nonetheless, the company continued to invest steadily in capacity expansion, diversifying its footprint beyond China, such as Vietnam and Germany.
It has also set up a new business unit, Sydrogen, to focus on developing solutions for a hydrogen economy.
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"We believe that these initiatives – alongside its proprietary, differentiated coating solutions that drive customer stickiness, as well as the large total market potential – position the company well for long-term growth, supported by favourable secular trends," says Lim.
Judging from recent quarters' numbers, the company has put the worst behind.
"Nonetheless, we would prefer to see further sequential, sustainable improvement to build up confidence around the name," says Lim.
Nanofilm Technologies shares traded at 69 cents as at 4.47 pm, unchanged for the day and down more than 10% year to date.
