• Customer Z’s upcoming product launch could introduce a new line of tablets that may further catalyse NanoFilm Technologies’s earnings growth in FY21F.
• We continue to expect the 3C markets to drive NanoFilm Technologies' earnings growth in FY21F.
• We reiterate our ADD call with an unchanged target price of S$5.52.

Gearing Up for Upcoming New Product Launches by Customer Z

• According to our checks, Customer Z (NanoFilm Technologies (SGX:MZH)’s major customer by revenue) has an upcoming product launch that could potentially introduce a series of new product lines to their portfolio. Our checks also suggest that a new line of tablets could likely hit the market with higher technological specifications that should encourage replacement demand from end-consumers, in our view.
• Post our meeting with NanoFilm Technologies’s management,
  1. we understand there is anticipation among consumers over the upcoming launch,
  2. we inferred from our discussions that as NanoFilm Technologies currently has a big market share in coating tablets for Customer Z, it could potentially become a beneficiary should the new tablets become a hit among consumers, and
  3. demand for wearables remains robust to-date.
• We continue to expect the 3C segments of smartphones, computers and wearables to drive NanoFilm Technologies’s earnings growth in FY21F.

Acquisition of Property at 11 Tai Seng Drive in Singapore

• On 9 Apr 2021, NanoFilm Technologies exercised its option to purchase the property at 11 Tai Seng Drive in Singapore from its vendor G.W.T International Pte Ltd for a total consideration of S$30.4m in cash, funded through internal resources and bank borrowings.
• We understand from management that the new building will house all important technology and competencies and NanoFilm Technologies will continue to invest in capex in FY21F.

New Markets Under Development

• Going forward, future markets under development include new energy, biomedical, aerospace and Internet-of-Things optics, according to NanoFilm Technologies’s FY20 annual report.
• NanoFilm Technologies has also completed the construction of its Shanghai Plant 2 with total construction costs amounting to S$27.0m in at least 20% of its net profits as dividends in FY21F.

Reiterate ADD on Nanofilm With Target Price of S$5.52

• We reiterate our ADD call on NanoFilm Technologies with an unchanged target price of S$5.52, still for its sole supplier status/proprietary technology moat.

• Catalysts include new order wins from customers/market share gains.
• Downside risks are customer concentration/stronger competition.

Source: CGS-CIMB Research - 16 Apr 2021