New Apple phones show enhanced NFC support

Thin Film Electronics 19 September 2018 Update
Download PDF

Thin Film Electronics

New Apple phones show enhanced NFC support

Industry update

Tech hardware & equipment

19 September 2018

Price

NOK1.10

Market cap

NOK1,287m

NOK8.18/US$

Net cash ($m) at 30 June 2018 excluding financial lease

66.2

Shares in issue

1.17bn

Free float

96.2%

Code

THIN

Primary exchange

Oslo

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(2.1)

(40.7)

(61.4)

Rel (local)

(4.5)

(42.5)

(67.1)

52-week high/low

NOK3.0

NOK0.8

Business description

Thin Film Electronics is a global leader in NFC mobile marketing and smart-packaging solutions using printed electronics technology. This technology should enable it to offer printed NFC tags at a substantially lower price point than conventional silicon tags.

Next events

Q318 results

9 November 2018

Analysts

Anne Margaret Crow

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

Thin Film Electronics is a research client of Edison Investment Research Limited

Apple’s introduction of native NFC support in the iPhone models launched this month is a key development for Thinfilm. First, it makes it easier for consumers with these models to tap and read NFC tags, removing an inhibitor to adoption. Second, it indicates that Apple is becoming more supportive of a consumer-friendly NFC ecosystem. The initial reaction from Thinfilm’s customers to the announcement appears to be very positive. Because it will take time for this heightened interest to convert to potential orders, we leave our estimates and valuation broadly unchanged.

Year end

Revenue ($m)

EBITDA*
($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

EV/sales
(x)

12/16

3.8

(36.9)

(42.8)

(6.5)

0.0

23.9

12/17

5.9

(50.9)

(57.5)

(6.6)

0.0

15.4

12/18e

5.4

(49.5)

(54.2)

(4.6)

0.0

16.9

12/19e

34.5

(43.3)

(51.3)

(4.4)

0.0

2.6

Note: *EBITDA, PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

New iPhone models improve NFC usability

All three of the Apple iPhone models launched this month (iPhone XS, XS Max and XR) will support native background NFC tag read functionality. This means users with these new iPhones will not have to launch a dedicated app to tap and read a NFC tag as they are obliged to do on the iPhone X. The cumbersomeness of this approach has been cited by Thinfilm as a major inhibitor to adoption (see our August note). Moreover, while Android phones need to be unlocked before tapping, we understand the new model iPhones will not have to be unlocked, so iOS is overtaking Android with regards to NFC ease of use.

Apple attitude to NFC more positive

The initial reaction from Thinfilm’s customers indicates they see Apple’s announcement as a sign that Apple wants its phone users to start scanning NFC tags. This is encouraging brand owners to take a more serious interest in NFC marketing. However, for Thinfilm to derive maximum benefit from this interest, Apple needs to support the non-standard tags talk first (TTF) NFC protocol deployed in Thinfilm’s printed tags, thus justifying the investment in a roll-to-roll facility for manufacturing these tags in high volume. Together with a number of major semiconductor players, Thinfilm has submitted the TTF protocol for inclusion within the NFC standard to the NFC Forum. Inclusion of TTF within the NFC standard, which management anticipates will be decided by end 2019, should encourage Apple to provide TTF support. We note the recent appointment of Thinfilm employee Cosmin Pascu as vice-chair of the NFC Compliance Committee.

Valuation: Substantial upside potential, execution key

We leave our estimates unchanged at this stage, although we note that this development should provide support to our mid-term forecasts. Following the strengthening in the US$/NOK exchange rate since our last note, we adjust our base case indicative valuation from NOK1.92/share to NOK1.86/share.

Increasing penetration of Apple customer base

At the moment Apple models preceding the iPhone X do not support NFC (see Exhibit 1). At this stage, it is unclear whether it will be technically possible to retroactively implement support on the installed base of iOS device. Even if this were possible, we have no visibility on whether Apple has any intention of doing this. This means that for now there is still a significant proportion of iPhones in use that cannot tap and read tags deploying standard NFC protocol. This proportion will reduce year by year as users upgrade. Also, it is possible that the inclusion of native NFC support on the three new models will encourage existing iPhone X users to download the app required and start tapping tags. However, even though NFC tapping activity is restricted to a sub-set of iPhone users, the recent announcement from Apple appears to have triggered a fresh wave of interest in NFC from brand owners. Firstly, they seem less interested in the absolute proportion of iPhone users with NFC compatible models than the overall direction of travel, which is towards greater use of NFC, and they want to be amongst the first to embrace the technology. Secondly, many brand owners are keen to engage with aspirationals who tend to change their phones more often and want the latest models which are the ones with NFC support.

No Apple phones currently support the TTF protocol used in Thinfilm’s printed tags. This means that for campaigns addressing both Android and iOS users, Thinfilm supplies silicon tags manufactured by third parties and programmed for use with its proprietary CNECT software platform. This enables the company to participate in the increasing demand for NFC tags despite the lack of Apple support for the TTF protocol. Once Thinfilm’s new roll-to-roll manufacturing facility is outputting high volumes of printed tags, which we expect will take place during FY19, it is important that the printed tags are Apple compatible as well. Management’s preferred strategy for achieving this is to get the TTF protocol embedded in the NFC standard but, as discussed in our July note, it is pursuing other options in parallel to ensure it achieves this vital objective.

Exhibit 1: NFC support

Phone type

Phone locked

Phone unlocked

Requires App download

Standard NFC

Earlier iPhone models

N/A

iPhone X

iPhone XS, XS Max and XR

NFC enabled Android devices

TTF NFC

iPhone – all models

N/A

NFC enabled Android devices

Source: Edison Investment Research

Exhibit 2: Financial summary

US$000s

2016

2017

2018e

2019e

2020e

Year end December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

USD

USD

USD

USD

USD

Revenue

 

3,845

5,907

5,422

34,528

141,092

EBITDA

 

(36,873)

(50,867)

(49,492)

(43,343)

15,723

Operating Profit (norm, before amort. and except.)

 

(40,049)

(57,858)

(54,280)

(50,255)

8,618

Intangible Amortisation

0

0

0

0

0

Exceptionals

0

0

0

0

0

Share-based payments

(1,433)

(2,220)

(1,390)

(1,390)

(1,390)

Operating Profit

(41,482)

(60,078)

(55,670)

(51,645)

7,228

Net Interest

(2,731)

374

65

(1,002)

(2,041)

Profit Before Tax (norm)

 

(42,780)

(57,484)

(54,215)

(51,257)

6,577

Profit Before Tax (FRS 3)

 

(44,213)

(59,704)

(55,605)

(52,647)

5,187

Tax

(282)

122

0

0

0

Profit After Tax (norm)

(43,062)

(57,362)

(54,215)

(51,257)

6,577

Profit After Tax (FRS 3)

(44,495)

(59,582)

(55,605)

(52,647)

5,187

Average Number of Shares Outstanding (m)

659.1

862.7

1,172.0

1,172.0

1,172.0

EPS - normalised (c)

 

(6.5)

(6.6)

(4.6)

(4.4)

0.6

EPS - (IFRS) (c)

 

(6.8)

(6.9)

(4.7)

(4.5)

0.4

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

EBITDA Margin (%)

N/A

N/A

N/A

N/A

0.1

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

N/A

6.1

BALANCE SHEET

Fixed Assets

 

24,903

34,246

53,382

55,044

51,677

Intangible Assets

3,142

2,190

3,686

5,332

7,142

Tangible Assets

9,155

20,522

39,234

40,322

36,218

Investments

12,607

11,534

10,462

9,390

8,318

Current Assets

 

79,231

115,074

33,678

24,928

50,773

Stocks

1,086

709

891

5,676

23,193

Debtors

3,940

16,245

891

5,676

23,193

Cash

74,205

98,120

31,896

13,576

4,386

Other

0

0

0

0

0

Current Liabilities

 

(7,789)

(7,320)

(891)

(46,676)

(64,193)

Creditors

(7,789)

(7,320)

(891)

(5,676)

(23,193)

Short term borrowings

0

0

0

(41,000)

(41,000)

Long Term Liabilities

 

(12,850)

(12,125)

(11,581)

(11,037)

(10,493)

Long term borrowings

(12,581)

(12,125)

(11,581)

(11,037)

(10,493)

Other long term liabilities

(269)

0

0

0

0

Net Assets

 

83,495

129,875

74,587

22,259

27,764

CASH FLOW

Operating Cash Flow

 

(37,412)

(52,281)

(40,749)

(48,128)

(1,795)

Net Interest

88

343

65

(1,002)

(2,041)

Tax

(118)

(38)

0

0

0

Capex

(5,350)

(27,107)

(24,996)

(9,646)

(4,810)

Acquisitions/disposals

0

0

0

0

0

Financing

101,124

103,285

0

0

0

Dividend payments and Other items

(67)

170

0

0

0

Net Cash Flow

58,265

24,372

(65,680)

(58,776)

(8,646)

Opening net debt/(cash)

 

(15,940)

(61,624)

(85,995)

(20,315)

38,461

Finance leases initiated

(12,581)

0

0

0

0

Other

0

0

0

0

0

Closing net debt/(cash)

 

(61,624)

(85,995)

(20,315)

38,461

47,107

Source: Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Thin Film Electronics and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Thin Film Electronics and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues

You may be interested in