NanoFilm shares regain some ground after founder explains changes

NanoFilm Technologies shares closed higher yesterday after founder and executive chairman Shi Xu told a briefing about the company's recent management changes and potential for growth.

The stock closed at $3.96, up 14 cents or 3.66 per cent, after Dr Shi laid out the reasons behind a 2.3 per cent year-on-year drop in first-half net profit to $18.1 million despite revenue increasing 24.2 per cent to $96.6 million.

The firm, which makes high-tech carbon coating used in cars, smartphones and computers, incurred a $2.6 million one-off cost, including higher utility expenses at its new Shanghai Plant 2 in part due to the pandemic. Tariffs at the plant are now back to normal.

Dr Shi said an additional $2.8 million in manpower and manufacturing overhead costs stemmed from an increase in new projects, which are expected to boost revenue from this half of this year.

"The increase in new product introduction costs is a reflection of a higher business activity pipeline," Dr Shi added.

He also noted that seasonal issues and supply chain arrangements mean most device production activity is usually executed in the second half of the year.

Asked about the resignations of chief operating officer Ricky Tan last Friday and chief executive Lee Liang Huang in June, Dr Shi said NanoFilm now has a strong management team to scale the company's businesses over the long term.

NanoFilm touched an intraday high of $4.06 earlier yesterday, after lodging a daily share buyback notice on Tuesday night disclosing the purchase of 1.49 million shares worth around $5.81 million. The shares were purchased at $3.81 to $4.07 each.

The firm also bought 1.55 million shares at between $4.21 and $4.52 and worth almost $6.8 million after the market closed on Monday.

NanoFilm shares plunged 28.8 per cent on Monday and slid another 10.1 per cent on Tuesday, after Mr Tan's resignation last Friday, less than two months after Mr Lee stepped down due to health reasons. The shares hit an all-time high of $6.53 last month. The company listed on the Singapore Exchange at $2.59 last October when the firm raised $470 million.

Mr Mak Yuen Teen, associate professor of accounting at NUS Business School, said NanoFilm could have avoided the share price volatility if it had been more transparent in communicating the management changes. "Losing two senior executives within one year of listing raises the market's suspicion about how the company is being managed," he said.

Mr Jason Saw, head of institutional sales at CGS-CIMB, said NanoFilm is being punished for missing analyst expectations, which were "overhyped".

He pointed out that Singapore-listed tech company AEM Holdings replaced its chief executive three times in five years "without much reaction from the market".

CGS-CIMB analyst William Tng retained his positive outlook on NanoFilm based on the firm's growth potential, but lowered his target price for the stock to $5.05 from $5.52 previously on supply chain constraints.

UOB Kay Hian's John Cheong was less bullish. Despite the company's "healthy revenue pipeline", he downgraded his earnings forecasts for the next three years. His target price is now $4, from $5.51.