Questor: share in the success of this billionaire’s revolutionary invention

A fairy-tale business story is that a lone entrepreneur invents something revolutionary, builds a factory to make it, sells it to some of the world’s largest companies and finds himself a billionaire when he lists his firm on the stock market.

It’s not always just a fairy-tale: it is very much the story of this week’s stock. But it involves the more down-to-earth things that most real-world businesses must negotiate too: 20 years of slog between the eureka moment of invention and the sight of your shares on a stock market screen.

Shi Xu, the entrepreneur behind NanoFilm Technologies, was an associate professor at a university in Singapore when he discovered a new way to make protective coatings for a variety of surfaces such as mobile phone screens (his technology goes by the name of “filtered cathodic vacuum arc”).

He raised a few hundred thousand dollars to patent his invention and get the business off the ground. He had a factory built to make the films and, thanks to the superiority of his product over rival coatings, succeeded over the years in signing up a range of blue-chip customers, including Apple, Microsoft and Canon.

The business listed on the Singapore stock exchange late last year and the money it raised in the flotation enabled it to build a new factory in China, which has just opened. The firm also spends heavily on research and development, both in order to improve its existing product and to enable it to be used on a wider variety of surfaces.

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“The coating is harder, lasts longer and sticks better than rivals and is currently used on mobile phones, tablets, computers, optical devices and wearables. But it could easily be applied to a huge variety of other things – anything that needs to be protected,” said Hugh Young, who has a stake in the company in his Aberdeen Standard Asia Focus investment trust.

“Pardon the pun, but it has barely scratched the surface of the opportunity.”

As you would expect from a superior product that enjoys patent protection, margins are good – about 24pc on a net basis – and so are returns on capital, profitability and cash generation. The company has net cash on its balance sheet.

“It makes the equivalent of about £20m in profits but I think it can grow at about 20pc a year for quite a few years, which will turn it into a much larger business,” Mr Young said.

If this were a British tech start-up listed in London we would be worried that it would be taken over by a foreign rival before its full potential could be realised and before investors could share fully in its success. But NanoFilm conforms more to the Asian (or American) pattern of ownership: the founder has more than half the shares, so the firm’s future is in his hands.

It may not be the easiest stock to buy but Saxo Markets offers the shares.

Questor says: buy

Ticker: XSES: MZH

Share price at close: S$4.93

Update: MP Evans, United International Enterprises

Questor last spoke to Mr Young two years ago, when he told us about two palm oil companies: London-listed MP Evans and United International Enterprises, whose shares are traded in Copenhagen. Both have posted modest single-digit gains since, although there are dividends on top. Mr Young said he was holding on to both stocks.

“Both have proved resilient during the pandemic and have been ticking along nicely. Operationally they are both very strong,” he said.

In a reference to the controversy that palm oil arouses among environmentalists, he added: “They are good honest businesses. They do the right things.”

The fund manager said palm oil prices had been rising “so the shares have some catching up to do”.

MP Evans has a dominant shareholder in the form of a Malaysian investment firm and Mr Young said a bid would come sooner or later. “The bidder will have to offer a premium, although we cannot expect to get MP Evans’s book value of £10-£11 a share,” he said.

MP Evans’s shares closed at 675p last night. Both stocks are holds.

Questor says: hold

Ticker: MPE, CPH:UIE

Share price at close: 675p, Dkr1,450

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