• We reiterate our ADD call on NanoFilm Technologies as the company heads into the seasonally stronger 2H21F.
• Management addressed 1H21 performance and reiterated that 2H21F should be seasonally stronger.
• Management also highlighted the long-term growth opportunities (subject to gestation period).

Hearing From Nanofilm's Chairman

• NanoFilm Technologies (SGX:MZH) held a briefing for sell-side analysts today where Executive Chairman (interim CEO and founder), Dr. Shi addressed 1H21 performance and prospects for NanoFilm Technologies.
• We believe this is the first time Dr. Shi has spoken to the sell-side. This meeting was also attended by other members of the management, namely, the two deputy CEOs, CFO and Chief Human Resource Officer.
• Management elaborated on the one-off cost (S$2.6m) arising from the temporary measure to use diesel generators to power its Shanghai Plant 2. This was due to NanoFilm Technologies opting for a more efficient power arrangement for its Shanghai Plant 2 which needed a longer regulatory process to achieve. This issue has already been resolved.
• There was also unanticipated new product introduction (NPI) requirements from its customers (S$2.8m) which added to 1H21 costs ahead of revenue generation. We note that 1H21 new product introduction requests were higher than historical norm. We believe these NPIs will support revenue generation over the next 12 to 18 months (2H21F to FY22F).
• Production ramp-up has been in place since June and production volumes have likely reached 70-80% of production availability in July and the momentum could continue into Oct 2021.

Additional Insights From Nanofilm

• For the Nanofabrication business unit (NFBU), 1H21 revenue being a family run business and he believes the company can grow as a professionally managed firm.
• Over the past two days, NanoFilm Technologies has spent ~S$12.6m (average cost of S$4.15 per share) in share buy backs (3.04m shares). As the Board of Directors (Dr. Shi is the Executive Chairman) has recommended share buy backs, this has precluded Dr. Shi from capacity.
• On risk, actual firm production visibility is one week. Although NanoFilm Technologies has rolling forecasts for up to a year, longer dated forecasts are typically subject to fluctuations.

Nanofilm Technologies - Recommendation

• Re-rating catalysts could be results and the then FY22F outlook. NanoFilm Technologies is also open to M&A growth strategies.
• We reiterate our ADD call on NanoFilm Technologies. Our target price of S$5.05 is based on 34x (unchanged) FY22F EPS.

Source: CGS-CIMB Research - 18 Aug 2021