Edison Investment Research
November 2, 2016
Thinfilm (THIN) has announced two new orders this week: a six-figure pilot order in Asia for NFC OpenSense tags for use in tobacco packaging and another for integrating NFC SpeedTap labels into the packaging of Italian extra extra virgin olive oil producers including Buonamici, La Ranocchiaia, SPO and Il Cavallino. The initiative is in combination with iOlive, an industry app, which is used by 150 Tuscan olive oil brands. Tobacco and extra virgin olive oil are high-volume global products with significant counterfeiting and product differentiation challenges, so we see these orders as adding to Thinfilm’s growth potential.
We see the Asian order as particularly high potential. Asia is a key target market for Thinfilm given high and fast-growing ownership of NFC-enabled Android phones. The addressable market for tobacco products is also very large (Chinese cigarette sales alone total 2.5 trillion pa), while the market faces major counterfeiting/illicit sales challenges. The Vietnamese government estimates that 25% of the 4bn packets sold pa are counterfeit or illegal, while BAT quotes research showing annual sales of illicit cigarettes at 600bn or 12% of global consumption.
Authenticity is the driving issue for THIN in the olive oil market, with recent reports showing a high level of lower-quality olive oil being passed off as extra virgin in Italy and the US. Growers are also attracted to the brand differentiation offered by the NFC-enabled labels.
Thinfilm anticipates selling its encoded NFC-enabled wet-inlay products at average prices of around 12-15c per unit when it commences operations from its new roll-to-roll line (R2R) in 2018, giving rise to potential annual revenues of c $680m. We have put our earnings forecasts under review following notification of THIN’s plans to install this above-mentioned line which will increase the annual production capacity of NFC OpenSense and NFC SpeedTap to 5bn units.