UOB Kay Hian downgraded Nanofilm Technologies International to Hold from Buy after first half earnings met only around 22 percent of the brokerage’s full-year estimate.
The research note was published prior to Nanofilm’s SGX filing Wednesday, which attempted to address concerns raised by analysts and investors after its first half earnings release and the resignation of its chief operating officer, not long after its CEO stepped down, spurred an as much as around 36 percent share price drop earlier this week.
Last week, Nanofilm Technologies reported first half net profit slipped 17.9 percent on-year to S$17.9 million on revenue of S$96.6 million, up 24.2 percent on-year; gross profit margins fell 6.5 percentage points on-year to 46.1 percent, amid higher costs associated with the new Shanghai Plant 2, equipment qualification costs and higher new-product introduction costs, the company said.
UOB Kay Hian cut its 2021, 2022 and 2023 earnings per share (EPS) estimates by 15 percent, 9 percent and 8 percent, respectively, after lowering revenue estimates on potentially weaker sales due to supply chain shortages.
The target price was lowered to S$4.00 from S$5.51, based on a price-to-earnings-growth ratio of 1.0 times, down from 1.2 times previously, to account for the earnings disappointment and to reflect a more conservative view.
UOB Kay Hian said the target implied a price-to-earnings ratio of 28 times 2022 estimates, compared with 35 times previously, a slight premium of 4 percent compared with peers.
“We believe its unique technology, superior net margin and sole supplier status for most of its major customers provide a strong competitive advantage and warrant a premium to peers,” the note said.
The brokerage said Nanofilm had a “healthy pipeline,” and it expected a better second half.
“Nanofilm is aggressively building up revenue pipeline in addition to its 3C new product introduction, with multiple strategic projects currently under development to take shape in the second half of 2021 and beyond. Nanofilm’s infrastructure puts it in a good position as it enters into a typically high activity season in the second half of 2021,” the note published Tuesday said.
Nanofilm tipped third quarter earnings to be robust, but the fourth quarter would depend on demand from consumers as many products are 3C-related, the note said.
Shares of Nanofilm were up 1.83 percent at S$3.89 at 2:48 p.m. SGT.