• During Apple’s keynote event this morning in California, it unveiled three new smartphone models – the iPhone XS, XS Max and XR. With pre-orders starting as early as this Friday, the iPhone XS and XS Max will supersede last year’s iPhone X, while the iPhone XR will replace the iPhone 8 and 8 plus.

• This is a switch from last year’s “single premium dual standard” model (where iPhone X was the single premium model), to a “dual premium single standard” model. The highlight during the event was the single standard model, iPhone XR. Other than a few exception of: i) a 6.1” LCD display panel instead of an OLED display panel and ii) single camera instead of a dual camera setup, the XR enjoys all the other bells and whistles of the premium models such as Face ID, A12Bionic chipset, bezel-less display and wireless charging.

• We highlight below the salient upgrades iPhone XS and XS Max from iPhone X: (i) While XS retained the 5.8” bezel-less OLED display from the X, the XS Max gets a larger 6.8” bezel-less OLED display fitted in a similar form factor as last year’s 5.5” iPhone 8 Plus, increasing the screen to body ratio for more immersive viewing experience; (ii) New A12Bionic chipset which is a 6-core processor coupled with an upgraded neural engine, capable of processing 5 trillion operations per second compared to A11’s 600 billion operations per second; (iii) Features water-resistance with IP68 certification (immersion up to 2m depth for 30 minutes);

• According the Newzoo, 26% of currently active iPhones are from the 7 (plus) series, followed by 22% from the iPhone 6S (plus) series. In comparison, iPhone 8 (plus) series only accounted for 8.2%. In our view, we believe the iPhone XR serves as a more compelling upgrade from the iPhone 7 (plus) and 6S (plus) series as opposed to the iPhone 8 (plus) series given its significant upgrades with more exciting features and more importantly a fresh design.

• The XR starts at $749 for the 64GB base model, while the iPhone XS and XS Max starts at $999 and $1,099 respectively.

• In addition, the new iPhones XS and XS Max features LTE Cat16 which is the first ever iPhone to breach the Gigabit barrier, capable of 1,024Mbps download speed. This represents a 70% increase in speed from the LTE Cat12 in last year’s Phone X, rated at 600Mbps download. These translate into higher content per device for Broadcom’s RF chips, which would support a higher average selling price (ASP).

• All in, signs are pointing towards a robust earnings momentum for Inari, which provides electronic manufacturing services (EMS) to Broadcom. We maintain our BUY recommendation on Inari with a fair value of RM2.61 per share, pegged to an unchanged CY19F PE of 20x.

Source: AmInvest Research - 13 Sept 2018