Tickrs Financial analyst Jaimes Chao, has initiated a &ldquo buy&rdquo call on Singapore-based deep-tech company Nanofilm Technologies International with a target price of 75 cents.

In his Dec 4 report, Chao notes that Nanofilm&rsquo s earnings are rebounding strongly after a difficult FY2023. FY2024&rsquo s revenue saw a growth of 15.4% y-o-y to $203.4 million and PATMI of $7.7 million. The momentum carries on into 1HFY2025 with 29.6% y-o-y revenue growth and a swing back to net profit of $1.6 million, compared to a loss of $3.7 million a year earlier.

&ldquo We expect this positive trajectory to accelerate, underpinned by Nanofilm&rsquo s diversified growth drivers &ndash from a recovering 3C (Consumer, Communication & Computer) electronics business to rapidly growing new segments in automotive coatings and hydrogen energy solutions,&rdquo says Chao.

 

In Chao&rsquo s opinion, Nanofilm&rsquo s strategic expansion into high-growth verticals (EVs, renewable energy, precision optical components) and geographies (new facilities in China, India, Vietnam and a foothold in Europe) positions it for a multi-year earnings uplift.

Already, margins are improving as recent expansion costs normalise and operating leverage kicks in. FY2024&rsquo s adjusted EBITDA margin rose to 25.4%, from 22.3% in FY2023 and net profit margin doubled to 3.8%.

Chao says that Nanofilm&rsquo s proprietary nanotechnology and partnerships such as with the NTI-NTU Corporate Lab, will bolster its innovation pipeline, giving it an edge in advanced materials. &ldquo With a solid net cash position balance sheet and disciplined management, Nanofilm has the capacity to fund growth and sustain dividends,&rdquo comments Chao.

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In Chao&rsquo s view, given Nanofilm is trading near book value and a P/E ratio that discounts a return to its historical earnings levels, he sees an attractive entry point for Nanofilm.

&ldquo We view Nanofilm as a compelling turnaround and growth story in the advanced materials space, deserving of a re-rating as earnings recover,&rdquo adds Chao.

Chao&rsquo s target price of 75 cents is based on 29 times FY2025 P/E ratio and eight times FY2025 EV/EBITDA. The target price is fundamentally supported by DCF cross-check by using conservative assumptions of mid-term revenue growth of around 8%, terminal growth of 3% and WACC of around 10%.

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At 75 cents target price, Nanofilm would trade at around 23 times FY2026 P/E ratio, still below its pre-downturn historical average (mid-20s) and reasonable relative to its growth prospects.

&ldquo We also note the consensus analyst target price averaging at around 71 cents (ranges from 62 cents to 79 cents), so our outlook is slightly more optimistic as we factor in successful execution of Nanofilm&rsquo s new initiatives,&rdquo concludes Chao.

As at 1.57 pm, shares in Nanofilm are trading 1.5 cents lower or 2.38% down at 61.5 cents.