Date: 02 October 2024
Broker: Lim & Tan Securities Pte Ltd

Nanofilm’s Role as an Apple Supplier

Nanofilm is a key supplier for Apple, providing semiconductor components crucial for iPhone production. However, recent reports from U.S. analysts have raised concerns about Apple potentially reducing iPhone 16 production orders by 3 million units. This reduction in orders is attributed to softer-than-expected demand for the iPhone 16 compared to previous models, which has cast a shadow over Nanofilm’s prospects.

Negative Market Sentiment Around Apple’s iPhone 16

Barclays, citing supply chain checks, reported that Apple may have cut roughly 3 million units for the December quarter, marking one of the earliest production cuts in recent history. This has triggered a negative ripple effect on Apple’s suppliers, including Nanofilm. Shares of Apple suppliers such as Cirrus Logic, Skyworks Solutions, and Qorvo fell by 1.9%, 2.6%, and 2.8%, respectively, following the news.

High Valuation Despite Market Underperformance

Nanofilm has experienced significant challenges in the stock market, underperforming against the broader FSSTI Index. While the FSSTI has gained 11% this year, Nanofilm’s stock has fallen by 7%. Despite this underperformance, Nanofilm’s current valuations remain elevated. The company is trading at a price-to-earnings (PE) ratio of 50x for FY2024, which is notably higher than Apple’s 33x PE ratio. Additionally, Nanofilm’s price-to-book (PB) ratio stands at 1.5x, further highlighting its high valuation.

Analyst Recommendations and Future Outlook

All analysts covering Nanofilm currently have “Sell” recommendations on the stock, with a one-year target price of 54 cents. This represents a potential downside of 37% from its current price. The company’s future outlook remains challenging due to its demanding valuations and the softening demand in the technology sector, particularly from key client Apple.

Conclusion

Nanofilm’s heavy reliance on Apple and its high valuations continue to weigh on the stock’s performance. With Apple facing lower-than-expected demand for the iPhone 16, Nanofilm’s growth prospects for the remainder of 2024 appear limited. Lim & Tan Securities maintains an “Underperform” rating on Nanofilm, expecting its underperformance to persist throughout the year.