Edison Issues ADR Update on Thin Film Electronics (TFECY)

Thin Film Electronics (Thinfilm) continues to report significant advances on an almost weekly basis. In October it took the keys to its new San Jose facility and recent milestones include new pilot orders in gemstones (Sarine Technology) and food (olive oil) and a partnership to produce combined hologram/NFC document authentication tags. We have cut our near-term earnings forecasts as THIN no longer intends to further de-bottleneck its existing plant (with short-term revenue implications), but our DCF valuation has risen 15% to $10.40/ADR, reflecting the expected boost to long-term cash flows from the greatly increased capacity/reduced cost expectations from the planned new roll-to-roll (R2R) production line.

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We see the key driver of value as the coming together of a number of key influences as 2018 approaches. Most particularly, the likely increase in volume orders arising from the group's ability to quote in scale and at lower prices as a result of its planned capacity increase in 2018; the expected rapid growth in the number of NFC enabled phones, which should put THIN at the vanguard of a major new retail phenomenon; and the ongoing rise of the consumer in China and Asia, which THIN is planning to tap into with its focus on these markets. Following the above-mentioned revisions to our forecasts, our DCF valuation has increased 15% to $10.40 per ADR.

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