• In its 3Q21 business update, NanoFilm announced that Deputy CEO Gary Ho will be appointed as the new CEO, effective 1 Jan 2022.
• Due to supply chain disruptions, NanoFilm expects 4Q21F to be stronger than 3Q21 and production orders could potentially spill into FY22F.
• Reiterate ADD rating on NanoFilm with a lower target price pegged to ~30.44x FY22F P/E.

Nanofilm Appointed New CEO

• NanoFilm Technologies (SGX:MZH)’s current Deputy CEO, Mr. Gary Ho will be the group’s new CEO with effect from 1 Jan 2022. Mr. Ho has been with the group for more than three years and has been leading NanoFilm’s efforts to develop new business opportunities and deepening existing relationships with customers.

3Q21 Disrupted by Supply Chain Woes

• Due to supply chain issues, such as component and chip think this acquisition is for vertical integration to help reduce production costs and protect NanoFilm’s intellectual property.

Cutting Margin Assumptions

• Given the inflationary cost pressures, production disruptions and sales mix changes, we reduce our FY22F and FY23F gross profit margin assumptions to 51.2% and 51.0%, respectively, from 56.0% and 58.0% previously when such conditions were absent.
• NanoFilm’s normalised 1H21 gross profit margin was 51.7%. Our core EPS estimates for FY22F and FY23F are reduced by 11.2% and 10.8%, respectively.

Reiterate ADD on Nanofilm But Lower Target Price to Reflect Current Challenges

• Our FY20-23F EPS CAGR forecast for NanoFilm is 24.35% and a target P/E of deviation below its historical mean.

• Re-rating catalysts include new order wins from customers/market share gains.
• Downside risks are customer concentration/persistent component shortages. We believe NanoFilm’s coating solutions can find uses in new and this will aid the group’s diversification efforts.

Multiple Growth Drivers for Nanofilm

1. Increased wallet share in smartphones.
2. Automotive piston ring JV takes off.
3. Diversifies into fast moving consumer goods,
4. Medical related business,
5. NFBU growth,
6. Renewable energy business opens new doors.

• Refer to the detailed analysis and also the ESG concerns of NanoFilm Technologies (SGX:MZH) in report attached below.

Source: CGS-CIMB Research - 14 Oct 2021