Tuesday 11 June 2024

Nanofilm: 70% Down From Its 2020 IPO Price, What Will Make It Recover?

Nanofilm is part of my portfolio and since the start of the year, I have started purchasing it at its 70 cent pricing. To be exact, I bought Nanofilm in Dec 2022 and then divested it at $1.50 which was my target price.

Anything Has Changed?

China manufacturing has shrank considerably. Nanofilm is a proxy of the China manufacturing story. With the recent decline in China's manufacturing over the past 2 years, Nanofilm's revenue has fallen. In all honesty, it is very difficult to value Nanofilm without thinking of the China story.

The other improvement seen is that Nanofilm is now in a low CAPEX cycle and started to efficiense its operations.

Nanofilm Growth in Net Profits

In FY23, Nanofilm experienced another decline in revenue along with it gross profits and net profits fell. It is very hard to predict how much will Nanofilm earn in FY24. If revenue rises, operating leverage naturally kicks in and the gross profits and net profits will improve substantially.

However, there is one aspect I can be certain of

China Manufacturing Will Recover

From a low base, China's PMI has started to recover posting "above 50" figures which indicates manufacturing growth in the country. As said Nanofilm is a proxy. 

Secondly, the company has expanded into Vietnam. So taking this 1+1, revenue should grow in FY24. 

Target Price for Nanofilm

I do not know the exact amount Nanofilm will be worth, however, with knowledge that revenue will grow and assuming profit margins recover, my bet is $2.56 (2020 IPO Price) could be seen again. However, it will take not just profit growth but also the sharing of dividends to achieve this.

A $2.56 share price means Nanofilm has a $1.7 billion market cap. I will abscribe a 20 times P/E for Nanofilm. So the question is if Nanofilm can earn $85 million net profit annually.

Since its IPO, the max Nanofilm has earned is $62 million profits on the back of $246 milllion revenue (25% net profit margin). $85 million net profit is in the realm of possibility. I do feel a $300 million revenue is possible and that should take the company to a $85 million net profit figure. 

Secondly, as long as the company starts sharing dividends, the overall effect will be a return of $2.56. This is where I am valuing the company now. Lots of Arts and no Science because how much will Nanofilm regain its profits is just too difficult to forecast.

As to if Nanofilm will return to its all time high of $6 (Market cap $3.98 billion). The question is if it can reach $200 million in net profits. For now, I do not forsee it will happen, but who knows!

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