OCBC Investment Research: Market Pulse – 27 November 2024
Welcome to the latest insights from OCBC Investment Research, where we dive deep into the most recent market trends and analyze the financial outlook for various companies. This report, dated 27 November 2024, offers a comprehensive analysis of several key players in the market.
Nanofilm Technologies International Ltd (NANO SP) – A Thawing Winter
Nanofilm Technologies is positioning itself for long-term growth despite facing near-term uncertainties. The company’s differentiated solutions and large market potential, coupled with favorable secular trends, lay the foundation for a promising outlook. Management anticipates higher year-on-year revenue and profits for fiscal year 2024, potentially marking the first year of growth since 2021.
In the third quarter of 2024, Nanofilm’s revenue grew 10% year-on-year and 38% quarter-on-quarter to SGD 60 million. Gross profit and EBITDA margins improved significantly, indicating a possible recovery. The Computer & Communication subsegment is particularly showing upward trends, suggesting positive momentum for the company.
However, uncertainties such as potential tariffs under a second Trump administration and global trading tensions could impact supply chains and demand recovery. Despite these challenges, Nanofilm’s proprietary coating solutions and efforts to diversify geographically position it well for the long-term. The company targets a fair value estimate of SGD 0.76, maintaining a HOLD rating.
Shanghai Pharmaceuticals Co. Ltd. (2607 HK / 601607 CH) – Distribution Business Outperformed
Shanghai Pharmaceuticals (SPH) has shown resilience in its distribution business amidst industry pressures. The company’s share prices have outperformed its peers, thanks to its robust distribution segment and strategic drug portfolio diversification.
In the first nine months of 2024, SPH’s revenue rose 6.1% year-on-year to CNY 209.6 billion, with a net profit increase of 6.8% to CNY 4.1 billion. The distribution segment achieved a 10.2% revenue growth, driven by the success of its contract service organization business and imported drug agency services. SPH’s acquisition of Cardinal Health’s China operations has strengthened its position in the distribution of imported and innovative drugs.
Despite a decline in the manufacturing segment’s revenue, management anticipates a growth rebound in 2025. The company’s strategic shift towards high-value innovative drugs is expected to drive future growth. The fair value estimate has been adjusted to HKD 18.15 (2607 HK) / CNY 25.29 (601607 CH), with a BUY recommendation.
Environmental, Social, and Governance (ESG) Updates
Nanofilm is committed to supporting a low carbon economy, with investments in hydrogen economy solutions. The company aims to reduce its greenhouse gas intensity by 40% and wastewater discharge intensity by 80% by 2030. Nanofilm has surpassed its 2030 target for renewable energy use, highlighting its dedication to sustainability.
However, areas for improvement remain, such as increasing employee training hours and enhancing board diversity. Despite these challenges, Nanofilm’s sustainability efforts contribute to its strong market position.
Shanghai Pharmaceuticals’ ESG rating was downgraded in September 2024 due to potential governance concerns. Despite having a whistleblower protection mechanism, the company lacks a detailed policy against bribery and corruption. SPH’s quality assurance practices are robust, with no evidence of product recalls or regulatory warnings from 2022 to 2024.
Stay tuned for more insights from OCBC Investment Research as we continue to monitor and analyze market trends and company performances.
