Nanofilm Technologies (SGX: MZH) was one of the rare bright spots in the Singapore IPO market last year.
The group, which produces advanced materials and nanoproducts for the consumer electronics, communications and automotive industries, offered shares at S$2.59 apiece last October.
Cornerstone investors included Temasek Holdings’ Venezio Investments and Lion Global Investors with a high demand for its shares from the public.
Shares of Nanofilm have soared 150% from its IPO to an all-time high of S$6.53 last month.
However, upon the release of its fiscal 2021 half-year (1H2021) earnings, the group saw its stock plunge 33% in just one week, from S$5.97 to S$3.99.
Is this a buying opportunity for bargain hunters?
Or should investors be justifiably worried by the latest results?
Lower than expected numbers
Nanofilm reported a 24.2% year on year increase in revenue for 1H2021 to S$96.6 million.
However, gross profit only rose by 8.9% year on year as the cost of sales increased faster than revenue.
Meanwhile, selling and distribution expenses jumped by close to 50% year on year to S$13.4 million, while administrative expenses increased by 23% year on year.
The sharp jump in expenses led to a 3.1% year on year dip in net profit to S$17.9 million.
In its announcement, the group explained that there were higher costs due to its new Shanghai Plant 2 coupled with equipment qualification costs.
There were also development costs for new products that had yet to contribute meaningfully to revenue.
Amid the dip in net profit, Nanofilm declared an interim dividend of S$0.01 per share, down from the interim dividend of S$0.019 paid out a year ago.
Growing its business
The nanotechnology specialist continues to grow its business, with a recent announcement that it had signed an agreement with Temasek to enter the hydrogen economy.
Both companies will establish Sydrogen, a joint venture that will enable the widespread adoption of hydrogen energy using Nanofilm’s proprietary technologies that will be integrated into various components and products.
Sydrogen has identified massive opportunities in fuel cell vehicle opportunities, whereby projected sales of global passenger electric vehicles is estimated to increase from just 2,000 units in 2020 to around 1.6 million units by 2030.
For the commercial electric vehicle market, the total addressable market is also growing at a healthy 16% compound annual growth rate, and is projected to hit US$50.8 billion in nine years.
Meanwhile, Nanofilm’s largest division, the advanced materials business unit (AMBU), has also progressively installed new coating equipment in preparation for production in the second half of 2021.
Elsewhere, the group is also building up its business pipeline with new projects in existing and new markets that will deliver in 2021’s second half and beyond.
Resignation of CEO and COO
Nanofilm has also alarmed investors with the resignation of both its CEO and COO within a space of two months.
On 23 June, it was announced that CEO Lee Liang Huang had resigned due to health reasons.
Then, on 13 August, COO Ricky Tan announced his departure for personal reasons.
Unsurprisingly, the departure of two key executives in such a short space of time has rattled investors.
In the meantime, Executive Chairman Shi Xu has taken over as interim CEO while the group continues to search for potential CEO candidates.
Nanofilm also said that COO Ricky had left for a sabbatical leave, during which the group decided to transition to a business unit structure post-IPO.
In the process, the COO’s work scope would have undergone some adjustments.
Upon ex-COO Ricky’s return, he consulted with the group and decided that it would be better to part ways.
However, Nanofilm assures that the remaining senior management team has the expertise and credentials to lead the group to its next phase of growth.
A large and growing market
Nanofilm’s business remains well-positioned to ride on multiple avenues of growth.
The advanced materials market size is expected to hit US$24.3 billion by 2023.
In response, the group has recently ramped up its production in sectors such as automotive, optical lens and optical sensors.
The group is also hoping to integrate itself into the value chain of strategic partners, with the components market estimated at US$423 billion.
New areas that could open up business opportunities include the biomedical, internet-of-things optics and medical lens and devices sectors.
Get Smart: Look past the short-term
Investors should look past the 1H2021 results and look to the group’s potential as it entrenches itself in various promising industries.
While the departure of key executives is certainly a cause for concern, investors can take comfort in the fact that the founder and chairman is still at the helm.
Nanofilm promises to deliver exciting growth opportunities to investors who can see past these negative events.
Accelerate your retirement plans with these 5 SGX stocks. Their dividends are climbing, and are well-positioned to weather through storms in the future. We think at least one of them deserves a spot in your portfolio. To find out their names, grab a copy of your FREE special report:“Dividend Stocks That Can Pay You For Life” today. Click here to download now.
Follow us on Facebook and Telegram for the latest investing news and analyses!
Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
