Inari in position to capitalise on new products
04 Mar 2024
Analysts are still positive about semiconductor company Inari Amertron Bhd’s prospects, despite the group’s lower core net profit of RM175.9mil in the first half of financial year 2024 (1H24).
The 14% drop was largely due to higher electricity tariffs and some production losses owing to power surges from the grid, while its top line grew 2% on a decent year-end shopping season.
Kenanga Research said it liked Inari for being the closest proxy to 5G adoption and also, for being highly responsive to market demands with the roll-out of new technologies such as double-sided moulding and system-on-module (SOM).
Furthermore, the group has made significant expansion in China, capitalising on the country’s aggressive push for semiconductor self-sufficiency.
On Inari’s outlook, the research house said the group has defied the odds despite the market initially anticipating weaker sales of US smartphones in the year-end period weighing on the company’s results.
“We believe this was possible thanks to the fact that Inari’s ability to continue to enhance its customer’s stickiness as well as its ability to mitigate any unforeseen circumstances in a short period to ensure production efficiencies were upheld,” it added.
Inari is also making encouraging strides in its newer product offerings, including power module packages, memory chips, optical transceivers, and the building of a new factory in China.
“Many of these products are currently in advanced qualification and sampling stages and poised to make a positive impact in financial year 2024 (FY24) and FY25 as production is gradually ramped up,” Kenanga Research said.
The research house maintained its forecasts for Inari and kept its target price (TP) of RM4.17, adding that the companys also has the ability to preserve an impressive net margin of over 20% versus other outsourced semiconductor, assembly and test (Osat) peers that are still struggling at single-digit net margins, while continuing to grow its already large revenue base of more than RM1.5bil.
This further underlines its exceptional capability, especially in the face of rising labour and utility costs, added Kenanga Research.
According to Hong Leong Investment Bank Research (HLIB Research), Inari continues to work on new opportunities coming to the Malaysia Osat ecosystem, while focusing on strategies to improve production capacity and utilisation efficiently.
The research house, which has a “buy” on the stock with a lower TP of RM3.61 strongly believes that the iPhone 5G super cycle will continue while the optoelectronics division is expected to improve with more customer diversifications and partnerships.
Meanwhile, RHB Research has cut its FY24 earnings forecast for Inari by 4.9% on weaker margins, resulting in a lower TP of RM3.58.
Despite the unexciting smartphone market and sales, Inari’s stickier earnings profile is expected to contribute positively in FY24, said the research house.
This is due to its premium-product exposure that fared relatively well and diversification strategy with products and clients.
MIDF Research on the other hand maintained a “neutral” call on the stock with an unchanged TP of RM3.04 following the 2Q24 results.
“Inari’s 1H24 financial performance has been in-line with our expectations thus far. Nonetheless, we view that the group has performed relatively well to minimise the impact of the slowdown in the industry,” it added.
Source: The Star
