CGS International Securities has upgraded its rating on Nanofilm Technologies : MZH 0% to “hold” from “reduce” as the research house believes the nanotechnology solutions provider may deliver better-than-expected earnings per share growth for FY2024 and FY2025.

This comes after Nanofilm on Monday (Apr 22) posted a 19 per cent year-on-year rise in revenue to S$39 million for the first quarter of 2024, which the company said came amid a recovery in its consumer business segment.

Analyst William Tng said on Tuesday that he viewed the resumption of revenue growth in the company’s first fiscal quarter as a development that raises Nanofilm’s prospects for improved earnings. 

Based on CGS International’s estimates, Nanofilm’s dividend per share is projected to increase to S$0.008 in FY2024 and S$0.014 in FY2025, up from S$0.007 in FY2023.  

Despite the upgrade, Tng has lowered his target price on the stock to S$0.70 from S$0.75 previously. 

The revised target price is a 10 per cent discount to Nanofilm’s peer average, which Tng attributed to the presence of customer concentration risk and the company’s high operating costs despite reduction efforts.

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In particular, Tng believes the company remained in a net-loss position in Q1 due to operating costs that “remained elevated”.  

The target price’s implied valuation nonetheless remained unchanged at a 12.1 times price-to-earnings ratio based on the research house’s FY2025 earnings estimates. 

Tng opined that despite the resumption of Nanofilm’s revenue growth, the company’s gross profit margin (GPM) trend will depend on production volume and sales mix. 

“It could take a while for its GPM to return to the 46.9 per cent to 49.5 per cent levels achieved from FY2021 to FY2022,” he added. 

The analyst therefore trimmed his FY2025 GPM forecast by 1.3 percentage points, resulting in an earnings per share forecast of S$0.0578, down 6.8 per cent from S$0.062 previously.  

Shares of Nanofilm were trading 2.3 per cent or S$0.015 higher at S$0.655, as at 4 pm on Wednesday.