Dear all,

With reference to my LinkedIn write-up (click HERE) on NanoFilm (SGX: MZH) sometime in late Mar, NanoFilm surged too fast (almost 3x) in April before I can post a write-up on my blog.

With the company expected to report 1HFY26 results around mid-August, coupled with its 31% decline from its recent high of $1.68 on 24 April to close $1.16 today, I find the current risk-reward profile has become more interesting. While no investment is without risk, several factors suggest that sentiment may have turned more negative than the underlying business.

Here are a few observations.

A) Management has been buying back shares

Since 12 June, NanoFilm has repurchased approximately 1.44m shares at prices between $1.16 and $1.26.

Interestingly, this is the first meaningful share buyback programme since 2023. While share buybacks do not guarantee future share price performance, management is effectively deploying company cash to purchase shares at current levels, which may reflect confidence in the business.

B) A 31% correction despite little negative news

The share price has retreated significantly from its April high of $1.68 to close $1.16 today.

To my knowledge, there has not been any major adverse company-specific announcement during this period. As always, markets can move for many reasons, but such corrections occasionally create opportunities when fundamentals remain intact.

C) Customer Z’s product cycle in 2H2026 could be supportive

Customer Z, NanoFilm’s largest customer, is expected to launch several products during 2HFY26, including its first foldable phone and new watch series.

A foldable phone introduces several challenges:

• hinge durability
• scratch resistance
• wear resistance
• premium metallic surfaces

These are exactly the kinds of problems Nanofilm’s coating technology is designed to address.

Whether all these products translate into stronger orders remains to be seen, but the product pipeline appears encouraging.

D) 1QFY26 showed encouraging operating momentum

Although NanoFilm’s 1QFY26 business update did not disclose net profit, the quality of the numbers was notable.

Revenue increased 24% year-on-year to S$55 million.

More importantly, gross profit margin reached 39% while EBITDA margin came in at 26%.

During the earnings transcript, management highlighted that 1Q gross margin was approaching the peak levels achieved back in 2021. More importantly, management characterised the improvement as structural rather than a one-off.

If this proves sustainable, it could be a meaningful positive development.

E) Potential room for earnings upgrades?

Following the 1Q update, analysts generally raised their target prices.

However, based on my own reading of the reports, consensus margin assumptions still appear reasonably conservative. Should operating leverage continue into the second half of FY26, there may be scope for further earnings revisions.

This is, of course, simply my personal observation.

F) Analysts remain constructive overall

Based on Figure 1, current analyst target prices range between $1.06 and $1.91 post NanoFilm’s 1QFY26 business update which represent a potential capital upside of around -9% to +65%.

As always, analyst targets are opinions rather than guarantees, but the wide range reflects differing assumptions about execution and growth which also leaves room for potential upside surprises.

Figure 1: Analyst target prices range between $1.06 and $1.91

Source: Bloomberg

G) Sydrogen: China’s policy tailwinds could ignite NanoFilm’s next growth engine

Sydrogen is well anchored in China’s automotive hydrogen ecosystem, where policy support under the new five‑year plan is expected to accelerate tender activity. While 1Q2026 revenue dipped on seasonality while waiting for policy details to be announced, management noted that several major tenders are now underway, positioning Sydrogen to capture a meaningful share of China’s hydrogen projects. The near‑term focus is on achieving break‑even as tender wins materialize, while medium‑term growth will be supported by expanding partnerships in Europe, Japan, South Korea, and Southeast Asia across both fuel cell solutions and system‑level collaborations. Taken together, Sydrogen is emerging as a potential growth driver within NanoFilm’s portfolio, with China providing the immediate catalyst and international diversification broadening its runway.

H) Chart looks supportive

Based on Chart 1 below, NanoFilm seems to be in the midst of a flag formation, indicative of a continuation pattern. A sustained breach above $1.25 is positive for the chart and signifies the continuation of an up-move. A sustained breakdown at $0.985 invalidates the bullish setup.

Near term supports: $1.15 / 1.12 / 1.08

Near term resistances: $1.25 / 1.33 / 1.40 – 1.41

Chart 1: NanoFilm is in the midst of a flag formation

Risks

A) Price volatility

NanoFilm remains a relatively volatile stock. On some trading days, its average price movement can approach 5-6% even without company news.

B) Customer concentration risk

In addition, although the company has been actively diversifying its customer base, Customer Z remains its largest customer, making customer concentration an important risk to monitor.

Conclusion

Overall, I think NanoFilm offers an increasingly interesting risk-reward setup heading into its 1HFY26 results. Whether the market agrees will ultimately depend on execution over the next few quarters.

As always, please do your own due diligence and refer to the analyst reports before making any investment decisions.

Disclaimer

This article is provided solely for general information and educational purposes and should not be construed as financial advice or a recommendation to buy or sell any security.

Every investor’s financial circumstance, investment objective and risk tolerance are different. Please conduct your own due diligence and, where appropriate, consult a licensed financial adviser before making any investment decision.

I am vested in NanoFilm.

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As more detailed analyses are usually shared with my clients first, articles published on my blog may occasionally appear after the initial investment opportunity has emerged.

If you are interested in working together, feel free to contact me at crclk@yahoo.com.sg.

Please refer to the disclaimer HERE