Semiconductor demand, 5G to drive Inari’s growth

Semiconductor demand, 5G to drive Inari’s growth

25 May 2021

Inari proposes a 3rd interim single-tier and a special dividend per share of 2.2 sen and 1.8 sen respectively

INARI Amertron Bhd stands to gain further from the growth recovery in the global technology sector, especially from sustained strong global semiconductor demand and 5G adoption.

Hong Leong Investment Bank Bhd (HLIB) analyst Tan J Young expects Inari to post positive growth in its top and bottom lines for financial year 2021 (FY21) and continue to do so into FY22, barring further unfavourable pandemic developments and worsening of part shortages.

HLIB reiterated its ‘Buy’ call on Inari but lowered its target price (TP) to RM3.81 from RM3.88 after factoring employee share options scheme dilution.

“Our TP is pegged to unchanged 35 times of the calendar year 2022 (CY22) forward earnings per share (EPS). We strongly believe the iPhone 12 supercycle is likely to boost Inari back to its glory days, while its optoelectronics division is expected to improve with more customer diversification and partnerships,” Tan said in a research note yesterday.

Inari’s core net profit in the third quarter ended March 31, 2021 (3Q21), rose 233% year-on-year (YoY) to RM73 million, bringing the group’s cumulative nine-month period sum to RM248 million (+143% YoY), which exceeded HLIB and consensus expectations at 83% and 85% respectively.

Tan said, while the foreign-exchange impact on financials was unfavourable, revenue leapt 41% YoY due to higher volume loading of products, primarily radio frequency (RF) products.

Inari’s core earnings more than doubled on favourable sales mix and reversal of deferred tax provision.

Inari proposed a third interim single-tier and a special dividend per share of 2.2 sen and 1.8 sen respectively.

HLIB tweaked its FY21 estimate upward, resulting in Inari’s core profit after tax and minority interest going higher by 3%, while estimates for FY22-FY23 are unchanged.

Public Investment Bank Bhd (PublicInvest) deemed its forecast was in line as 4Q21 are seasonally weaker, given there are no new phone releases by phone maker Apple Inc.

“We made no changes to our estimates at this juncture, and we maintained our TP of RM4.40 despite rolling over our valuation base year to CY22 forecast, as we took into account the enlarged share base of 3.769 billion shares post-private placement.

“We maintained our ‘Outperform’ recommendation on Inari,” the research house noted yesterday.

PublicInvest stated that Inari is currently developing its electromagnetic interference shielding equipment, which is especially important for 5G technology.

MIDF Amanah Investment Bank (MIDF Research) also viewed Inari’s volume loadings would improve greatly moving forward.

“This would primarily come from the RF segment as Inari is a close proxy to 5G. The group’s RM1.07 billion private placement bodes well for the group to expand and meet the rising demand in semiconductors as well as to conduct acquisitions,” MIDF Research stated in a note yesterday.

MIDF Research noted Inari’s profit margin would improve continuously arising from various measures to control costs and capital expenditure. MIDF Research kept its ‘Buy’ recommendation on Inari with a TP of RM3.65 on unchanged FY22 EPS of 12 sen against an unchanged forward price-earnings ratio of 30.4 times.

Source: The Malaysian Reserve