Buying Nanofilm Technologies International (NTI) (SGX:MZH) at ~60 cents actually isn’t as crazy as it might look today—there is actually a coherent investment thesis and a good story behind it.
Nanofilm – the IPO story
NTI listed on 30 October 2020, raising S$510 million in its IPO. Shares were priced at S$2.59 each, and both the public and institutional tranche were more than 20x oversubscribed, putting the company at an initial valuation of $1.7 billion.
Nanofilm IPO was marketed as high-tech, high-growth story, and the stock rose above $6 within the first year of IPO. Valuations started to look lofty, even by tech unicorn standards.
Unfortunately, the company’s performance did not keep up with the share price. While there was revenue growth, margins kept getting squeezed and the reality so far was one of uneven execution and volatile profitability.
The stock then fell as low as $0.52 over the next 4 years ,which put the market cap at a low of just around $340 million, below its net book value of $438 million, or $0.67 per share.
With over $200m+ revenue on a negligible net debt position, this caught our attention as a potentially severely undervalued play.
Why did Nanofilm drop
The reason NTI dropped and lagged was because earnings and revenue outlook was lacklustre.
The share price decline over the years came about as 2023 profits and revenue fell, with gross margins also falling significantly. The company was even loss making in some quarters during 2024.
Even when revenue recovered, margin stayed weak due to cost pressures and less favourable product mix. There was also a little bit of bad timing as another of NTI’s manufacturing facility began operations, increasing unutilised capacity and causing higher expenses from higher depreciation.
At that point, investors were wary to bottom fish as the stock price was an example of a multi-year unwind of hype, compiled with deterioration in fundamentals and macro conditions. The decline actually makes sense.
Singapore manufacturing stocks such as AEM Holdings (SGX:AWX), Frencken (SGX:E28), Micro Mechanics (SGX:5DD), Venture Corp (SGX:V03), UMS Integration (SGX: 558) and Grand Venture Technology (SGX:JLB) all also fell from their highs, but many started their run up in February and March this year, which made Nanofilm a clear laggard.
What caught our interest at this time?
When we looked at the stock, it stood out as a clear undervalued play with an easy run up from $0.60 to at least $0.80 as a bottom fishing and turnaround play. But it wasn’t a random punt. There were actually a few specific rational reasons.
The first reason was that the stock was trading below its book value. This triggers a very common Singapore playbook: “If things don’t improve, downside is limited”. Especially with a strong balance sheet with little debt, this is a “cheap enough to be wrong” entry.
This alone was enough to draw interest in the stock.
The second reason was that the company has been positioning themselves to recover both from a revenue and margin standpoint.
Just like any other manufacturing play, with higher revenue comes operating leverage. NTI would have a chance of seeing earnings grow in multiples and move from a value play to a growth play.
If earnings normalize with strong forward looking numbers, valuation would potentially re-rate and expand.
The third reason was that NTI was fundamentally an electronics play, as a supplier of advanced coating solutions to the biggest phone company by market capitalization.
These reasons combined made us believe NTI was a worthwhile investment.
What made Nanofilm run up?
Nanofilm bottomed at $0.52 and as the rest of its peer group creeped up gradually over the past month, so did NTI, closing at $0.87 on Friday 17 Apr.
NTI ran up further to $1.02 by the close of Wednesday 22 Apr, just before its 1Q26 business update was released.
At that point, fundamentals looked a little lofty and further upside would have been much harder without a catalyst.
However, keen market watchers would have noticed the increasing trading volume and big purchase volumes which would indicate that the stock would continue its run up.
Q1 results showed Revenue of $55m, indicating Revenue growth of ~24% YoY.
Analysts estimated earnings growth of >50% YoY, based on a reported gross margin of 39% and an EBITDA margin of 26%.
The AMBU business unit remained the largest revenue contributor, accounting for 89% of total revenue and recorded 24% yoy growth. Nanofilm started providing more focused forward looking guidance to the market, sharing that it was looking at advancing sales initiatives, maintain cost discipline and continuing to be selective in capital investments.
Even though absolute margins are still low, the bull case views current margins as cyclical and temporarily depressed with many investors expecting that operating leverage will kick in.
These figures beat most analyst expectations by a mile, as margins improved on the back of higher revenue and better cost control. Singapore brokerage houses were publishing updated analyst reports and clamouring to re-rate positively.
By the end of Friday 24 Apr, the stock closed at $1.54, with a week high of $1.68, an increase of more than 50% in just 2 trading days. The key reason for the atmospheric run is the belief that this is early recovery, not peak earnings.
Is the share price run-up overdone?
Yes and No. Stocks have a reasonable intrinsic fundamental valuation. However, the market is also forward looking and can price in earnings even up to three years ahead of time if somewhat certain.
Stocks can also trade as an outlier from a fundamental standpoint. But this tends to not last for long. NTI at one point had a net profit margin of more than 20%. With analysts forecasting revenues of more than $250m in the next 2 years, potentially even $300m by the third, a net profit number of more than $60m was being bandied about.
Stocks can also trade as an outlier in terms of valuation, being 1/2/3 standard deviations out of the normal distribution of valuations. This could be interpreted as P/E ratio of more than 30 times or even 40 times.
With those forward looking net profit figures and P/E ratio, a market cap of $2 billion would mean a share price of $3.
In summary, this exuberance is the story of how a bubble tends to form and also how multi baggers happen.
p.s. if you want to learn how to analyse and find the best stocks to buy, Alvin shares our strategy at this live webinar.
