It has not been an easy time for Nanofilm Technologies International (SGX: MZH).
The nanofabrication specialist’s share price tumbled to an all-time low earlier this year at S$0.67.
On a year-to-date basis, shares are down 18.5% and have also halved in the past year.
Investors may be wondering if 2024 is the year when Nanofilm can pull off a business recovery.
If its business enjoys growth in both its top and bottom lines, its share price should naturally rebound.
Let us dig deeper to find out.
A downbeat set of earnings
Nanofilm reported a weak set of earnings for the second half of 2023 (2H 2023) and the full year.
For 2H 2023, revenue fell by 17.6% year on year to S$103.9 million but gross profit tumbled by 31.4% year on year.
Nanofilm’s net profit fell by nearly 58% year on year to S$10.6 million.
For the full-year 2023, revenue fell by a quarter year on year to S$177 million with gross profit sliding by 41.1% year on year to S$65.6 million.
With both admin, selling and distribution expenses rising year-on-year, Nanofilm’s net profit for 2023 plunged by 93.8% year on year to S$2.7 million.
The group’s balance sheet stood strong with S$155.2 million of cash and S$82.2 million of debt, giving the nanotechnology specialist a net cash balance of S$73 million.
However, the group generated a negative free cash flow of S$24.3 million for 2023, reversing the S$10.3 million free cash flow in the prior year.
A final dividend of S$0.0033 was declared, taking 2023’s total dividend to S$0.0066.
This was lower than the previous year’s total dividend of S$0.022.
Weakness across all three divisions
Nanofilm saw revenue weakness across all three of its divisions.
Advanced Materials business unit (AMBU), Nanofilm’s largest division, saw its revenue fall 24.4% year on year to S$141.5 million for 2023.
There was a bright spot though.
The industrial division within AMBU posted 10% year-on-year growth in printing and imaging along with precision engineering applications and a strong 31% year-on-year growth in Automotive.
The Industrial Equipment BU (IEBU) saw the sharpest revenue decline at 40.5% year on year to S$18.4 million because of customers’ slowdown and a delay in capital spending.
The Nanofabrication BU’s (NFBU) revenue fell by 16% year on year to S$16 million because of lower sales in the consumer electronics sector.
In terms of end-markets, Consumer saw the sharpest fall at 33% year on year to S$115.2 million with Industrial witnessing a gentler 7.1% year-on-year decline to S$60.7 million.
Better prospects for AMBU, NFBU and Sydrogen
Looking ahead, prospects look bright for AMBU with pipeline visibility enhanced by existing projects that are slated for mass production along with new projects advancing at a healthy clip.
Nanofilm has also commenced a mass production project with a new customer in the smartphone sector.
As for the industrial side, AMBU expects stable business across Singapore, China, and Japan but its green plating business is facing delays from a prolonged qualification process and sluggish industry growth along with slow customer acceptance.
The group’s recent acquisition of Axyntec will help it expand its presence in Europe and grow the division’s revenue.
As for NFBU, the outlook is positive driven by the mass production of micro-lens array lenses used in consumer wearables along with Fresnel lenses for smartphones.
Sydrogen commenced production for key automotive customers back in 2023 and will continue to accelerate its BPP coating services for the Chinese market this year.
A slower outlook for IEBU
On the flip side, IEBU has one product line reaching market saturation, leading to fewer growth opportunities.
At the same time, the slow Chinese market is also hampering sales opportunities.
Projects are also at various sales stages and have long gestation periods, thus requiring patience for revenue to flow in.
Get Smart: A better performance expected for 2024
From the summary above, it appears Nanofilm had a poor year because of a slowdown in the semiconductor and electronics sector.
These two sectors accounted for the bulk of AMBU’s revenue and impacted IEBU and NFBU’s revenue.
The outlook, however, looks positive and management expects the group to achieve higher revenue and profit for 2024, barring unforeseen circumstances.
Nanofilm will continue to optimise its cost structure and does not expect major capital expenditure apart from its research and development focus.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
