OCBC Investment Research Private Limited

22 April 2025

Nanofilm Technologies: Cloudy Outlook Largely Priced In – A Deep Dive into Growth Drivers and Risks

Investment Thesis: Nanofilm’s Long-Term Growth Potential

• Founded in 1999, Nanofilm Technologies International Ltd is a nanotechnology solutions leader in Asia. [[1]]
• The company leverages deep technologies, strong research and development (R&D), and engineering capabilities. [[1]]
• Nanofilm delivers differentiated solutions across various end-markets. [[1]]
• Performance is highly correlated to customer product demand, facing challenges in recent years due to a digital downturn, inflation, and supply chain issues. [[1]]
• The company has invested in capacity expansion and diversified its footprint beyond China. [[1]]
• A new business unit, Sydrogen, focuses on developing solutions for the hydrogen economy. [[1]]
• Proprietary coating solutions drive customer stickiness, positioning the company well for long-term growth. [[1]]

Financial Performance and Outlook

• 1Q25 revenue grew 12% year-on-year (YoY) to SGD44m. [[1]]
• Gross profit margin was lower at 27% (1Q24: 33%). [[1]]
• Softer revenue contribution came from the Industrial Equipment Business Unit (IEBU). [[1]]
• The Advanced Materials Business Unit (AMBU) and Nanofabrication Business Unit (NFBU) grew 11% and 49% YoY, respectively. [[2]]
• Within AMBU, the Industrial segment led growth at +34% YoY, driven by EuropCoating. [[2]]
• The Automotive segment grew 15% YoY, and the 3C segment grew 6% YoY. [[2]]
• IEBU revenue declined 24% YoY due to the timing of equipment deliveries. [[2]]
• Sydrogen revenue expanded 158% YoY. [[2]]

Tariff Uncertainty and Mitigation Strategies

• The outlook for tariffs remains uncertain. [[2]]
• Smartphones, computers, and selected electronic devices are exempted from “Liberation Day” tariffs. [[2]]
• Potential action against semiconductors and the electronics supply chain is possible. [[2]]
• Nanofilm has no material direct exposure to the US. [[2]]
• Singapore-based headquarters offer optionality to support key customers in multiple geographies. [[2]]
• Forecasts are intact, and the fair value (FV) estimate is maintained at SGD0.595. [[2]]
• A non-consensus BUY rating is maintained purely on valuation grounds. [[2]]
• Risks to the downside are noted, given the volatile global tariff situation. [[2]]
• Second-order impacts are challenging to quantify. [[2]]

ESG Updates: Sustainability Initiatives and Targets

• Nanofilm is a solutions provider supporting the transition to a low-carbon economy. [[2]]
• The company has invested heavily in solutions for a hydrogen economy. [[2]]
• An improved data collection system is in place for coating operations. [[2]]
• Granular oversight is enabled to track progress towards 2030 targets. [[2]]
• Nanofilm aims to reduce greenhouse gas (GHG) intensity by 40% by 2030. [[2]]
• A reduction of production wastewater discharge intensity by 80% by 2030 is targeted. [[2]]
• The company has surpassed its 2030 target to source at least 50% of total energy use from renewable sources or purchased carbon credits in FY23. [[2]]
• Sustainability approach broadened to encompass the value chain. [[2]]
• Human rights, environmental, and health and safety due diligence screening over 100% of critical direct suppliers is conducted. [[2]]

Areas for Improvement

• Employees underwent an average of 14 hours of training each in FY24, a decline from previous years. [[3]]
• More consistent effort to upskill workers is needed to reach the 2030 target of 40 hours of annual staff training per employee. [[3]]
• Improvement is possible in the diversity of governance bodies. [[3]]
• 80% of the board and senior management team were male in FY24. [[3]]

Potential Catalysts for Growth

• Strong improvement in business sentiment encourages customers to resume CAPEX spending / increase production. [[3]]
• Easing supply chain disruptions. [[3]]
• Positive revenue and cash flow contribution by Sydrogen. [[3]]
• Earlier-than-expected roll out of new products. [[3]]

Investment Risks to Consider

• Persistently weak demand from end-industries. [[3]]
• Failure to defend proprietary intellectual property rights. [[3]]
• Prospective growth dependent on success of R&D, which is not guaranteed. [[3]]
• Possible emergence of competing suppliers. [[3]]

Valuation Analysis: Comparison with Peers

The following table compares Nanofilm with its industry peers, providing key valuation metrics:

Company Overview

• Nanofilm Technologies International Limited (Nanofilm) is a leading provider of nanotechnology solutions. [[5]]
• The company leverages proprietary technologies and core competencies in R&D, engineering, and production. [[5]]
• Nanofilm provides technology-based solutions across a wide range of industries. [[5]]
• Solutions serve as key catalysts enabling customers to achieve high value-add advancements. [[5]]
• Surface solutions are based on vacuum deposition, including filtered cathodic vacuum arc (FCVA) technology. [[5]]
• Nanotechnology-based solutions are utilized in computer, communications and consumer electronics (3C), automotive, precision engineering, printing and imaging, and new technology. [[5]]
• Listed on the Mainboard of the Singapore Exchange (SGX) on 30 Oct 2020. [[5]]
• Constituent of various FTSE ST and MSCI indices. [[5]]

FY24 Revenue Breakdown

• By business units: AMBU (84.3%), IEBU (8.8%), NFBU (5.5%), Sydrogen (1.4%). [[5]]
• By end markets: Consumer (69.2%), Industrial (29.4%), New Energy (1.4%). [[5]]

Historical Financial Performance

The following table summarizes Nanofilm’s revenue and profit after tax from FY2020 to FY2024:

Detailed Income Statement Analysis

Key figures from the income statement are presented below:

Profitability and Credit Ratios

Key profitability and credit ratios are outlined below:

Disclaimer: This report is for informational purposes only and should not be considered as financial advice. Please consult with a financial advisor before making any investment decisions.