SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

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Equity Bottom-Up

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<div><em><strong>Non- SGX Report: These equity research reports are not written by the SGX</strong>.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></div>
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<h2>Nanofilm Technologies Int'l Ltd</h2>
<h3>Key takeaways from virtual NDR</h3>
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<li>We hosted Nanofilm Technologies Int’l (NTI) for a virtual NDR on Wednesday, 16 Dec 2020. The online meeting was well-attended with 34 participants.</li>
<li>The audience was interested in NTI’s competitive advantages, progress of its capacity expansion and potential new revenue possibilities.</li>
<li>We reiterate our Add rating with a target price of S$5.52.</li>
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<p><strong>Competitively positioned</strong></p>
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<p>● &nbsp;Management highlighted its key competitive advantages of a) patented and better performance coating materials, b) patented coating technology, and c) in-house expertise in assembling its own proprietary coating equipment.</p>
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<p>● &nbsp;NTI also highlighted that its coating services are cost competitive due to the above- mentioned competitive strengths. We note that competitors’ coating cost could be higher as they need to buy coating equipment from external suppliers.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.

Nanofilm Technologies Int'l Ltd
Key takeaways from virtual NDR





We hosted Nanofilm Technologies Int’l (NTI) for a virtual NDR on Wednesday, 16 Dec 2020. The online meeting was well-attended with 34 participants.
The audience was interested in NTI’s competitive advantages, progress of its capacity expansion and potential new revenue possibilities.
We reiterate our Add rating with a target price of S$5.52.





Competitively positioned


● &nbsp;Management highlighted its key competitive advantages of a) patented and better performance coating materials, b) patented coating technology, and c) in-house expertise in assembling its own proprietary coating equipment.


● &nbsp;NTI also highlighted that its coating services are cost competitive due to the above- mentioned competitive strengths. We note that competitors’ coating cost could be higher as they need to buy coating equipment from external suppliers.






























(Non-SGX Report) Nanofilm Technologies Int'l Ltd: Key Takeaways from Virtual NDR

<p><em><strong>Non- SGX Report: These equity research reports are not written by the SGX.</strong>&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p>
<h2>Nanofilm Technologies Int'l Ltd</h2>
<h3>Nano-sized powerhouse</h3>
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<li>NTI is the only company in the world that provides proprietary and environmentally-friendly FCVA coating technology at scale.</li>
<li>Our plant tour reaffirms our strong conviction of c.34% revenue/35% EPS CAGR over FY19-22F.</li>
<li>Initiate coverage on NTI with an Add rating and P/E based TP of S$5.52.</li>
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<p><strong>Sole provider of FCVA technology with superior advantages</strong><br>According to Nanofilm Technologies International Limited (NTI), it is the only company globally to offer Filtered Cathodic Vacuum Arc (FCVA) coating technology on a commercial scale as at 23 Oct 2020. Against conventional coating technologies, NTI’s offerings provide greater functional and cosmetic advantages and is also environmentally-friendly. NTI’s patented technology (key patents’ expiry range from 2025-2039) lends confidence to our 30% average net profit margin driving net profit growth of 21.8-60.7% over FY20-22F.</p>
<p><strong>Plant tour reaffirms our conviction</strong><br>We toured NTI’s plant in Singapore where we witnessed the FCVA coating process and saw sample products of customer Z (c.51% of FY19 sales). Our inference based on conversations with factory supervisors and management is that a capacity ramp up is underway, backed by strong demand from its wearables/tablets segment. We also noted that its coating process is environmentally-friendly as it does not utilise harmful chemicals and does not involve waste water discharge.</p>
<p><strong>Wearables (amongst others) drives multi-year earnings runway</strong><br>We expect NTI to benefit from the strong growth in smartwatches over our forecast period. Global smartwatch revenue grew 20% yoy in 1H20. We think strong demand for smartwatches will sustain the high growth momentum of its wearables business. We expect a replacement cycle to drive Microsoft Surface tablet sales (benefitting sole coater of the Surface tablet logos, NTI). NTI is also the sole coater for 90% of its major customers as at 23 Oct 2020, including being the sole supplier of Fresnel lenses (used in smart phones) for certain models for customer Z. Other long-term growth drivers include demand for coating in automotive piston rings and consumer electronics.</p>
<p><strong>Initiate with an Add rating and TP of S$5.52</strong><br>We initiate coverage on NTI with an Add rating, and S$5.52 target price based on 35.3x FY22F EPS, supported by a) c.35.3% EPS growth over FY19-22F and b) sustainable net profit margin given its sole supplier status/proprietary technology moat. Post FY23F, we think wearables could sustain 30% net profit growth for NTI. Our FY22F net profit forecast is 12% above Bloomberg consensus. Re-rating catalysts are a) new customer wins/market share gains. Downside risks are customer concentration/ stronger competition.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.
Nanofilm Technologies Int'l Ltd
Nano-sized powerhouse

NTI is the only company in the world that provides proprietary and environmentally-friendly FCVA coating technology at scale.
Our plant tour reaffirms our strong conviction of c.34% revenue/35% EPS CAGR over FY19-22F.
Initiate coverage on NTI with an Add rating and P/E based TP of S$5.52.





Sole provider of FCVA technology with superior advantages According to Nanofilm Technologies International Limited (NTI), it is the only company globally to offer Filtered Cathodic Vacuum Arc (FCVA) coating technology on a commercial scale as at 23 Oct 2020. Against conventional coating technologies, NTI’s offerings provide greater functional and cosmetic advantages and is also environmentally-friendly. NTI’s patented technology (key patents’ expiry range from 2025-2039) lends confidence to our 30% average net profit margin driving net profit growth of 21.8-60.7% over FY20-22F.
Plant tour reaffirms our conviction We toured NTI’s plant in Singapore where we witnessed the FCVA coating process and saw sample products of customer Z (c.51% of FY19 sales). Our inference based on conversations with factory supervisors and management is that a capacity ramp up is underway, backed by strong demand from its wearables/tablets segment. We also noted that its coating process is environmentally-friendly as it does not utilise harmful chemicals and does not involve waste water discharge.
Wearables (amongst others) drives multi-year earnings runway We expect NTI to benefit from the strong growth in smartwatches over our forecast period. Global smartwatch revenue grew 20% yoy in 1H20. We think strong demand for smartwatches will sustain the high growth momentum of its wearables business. We expect a replacement cycle to drive Microsoft Surface tablet sales (benefitting sole coater of the Surface tablet logos, NTI). NTI is also the sole coater for 90% of its major customers as at 23 Oct 2020, including being the sole supplier of Fresnel lenses (used in smart phones) for certain models for customer Z. Other long-term growth drivers include demand for coating in automotive piston rings and consumer electronics.
Initiate with an Add rating and TP of S$5.52 We initiate coverage on NTI with an Add rating, and S$5.52 target price based on 35.3x FY22F EPS, supported by a) c.35.3% EPS growth over FY19-22F and b) sustainable net profit margin given its sole supplier status/proprietary technology moat. Post FY23F, we think wearables could sustain 30% net profit growth for NTI. Our FY22F net profit forecast is 12% above Bloomberg consensus. Re-rating catalysts are a) new customer wins/market share gains. Downside risks are customer concentration/ stronger competition.





(Non-SGX Report) Nanofilm Technologies Int'l Ltd: Nano-Sized Powerhouse

Singapore

Nanofilm Technologies International Pte Ltd manufactures industrial machinery. The Company specializes in batch and load-lock systems, as well as materials with special surface properties and nano-engineering capabilities. Nanofilm Technologies International serves customers worldwide.

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Nanofilm (NANO SP)

(Non-SGX Report) Nanofilm Technologies Int'l Ltd: Key Takeaways from Virtual NDR

Non- SGX Report: These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external...

Singapore Exchange Ltd (SGX)

(Non-SGX Report) Nanofilm Technologies Int'l Ltd: Nano-Sized Powerhouse

Non- SGX Report: These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external...

Singapore Exchange Ltd (SGX)

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