Investment Highlights

• We maintain our HOLD call on Inari Amertron (Inari) with a fair value of RM1.65/share. Our valuation is based on an unchanged CY19F PE of 20x, while maintaining our earnings forecast.

• Apple has agreed to pay Qualcomm an undisclosed amount as compensation for patent infringement, ending their two-year legal dispute. Apple inked a 6- year licensing deal with Qualcomm and multi-year chipset supply.

• Hours after Apple settled the dispute with Qualcomm, Intel announced that it will be exiting the 5G mobile modem business. It was unclear if Intel’s decision to drop out was due to Apple’s settlement with Qualcomm or if it was Intel’s exit from the 5G market that brought about Apple’s decision to settle with Qualcomm.

• Apple’s original plan was to continue dual-sourcing for its modems from Intel and Qualcomm. However, due to a licensing dispute, Qualcomm refused to supply modems to the iPhone maker in 2018 which left Apple no choice but to rely solely on Intel’s modem for its 2018 models (Exhibit 1).

• Qualcomm’s “no licence, no chips” policy forces customers to licence its technology in order to obtain access to a supply of its hardware. Despite the unfavourable policy, Apple decided to settle the dispute in order to keep pace with of the 5G schedule.

• Fast Company recently reported that Intel has been missing deadlines for its 5G modem that was slated to go into the 2020 iPhone. Already behind the curve and unlikely to adopt Huawei’s mobile modem, Apple settled with Qualcomm which already has 5G mobile modems (Snapdragon X50 and X55) in place.

• While this will speed up the adoption of 5G in Apple iPhones, we opine that the market will only see a 5Genabled iPhone in 2020 due to timing issues. Historically, the iPhone has proven to be behind its peers in adopting new technology, such as the transition from 3G to 4G.

• We are mildly positive on this development as it bodes well for Inari which is in the supply chain for the smartphone radio frequency, a vital element in the adoption of 5G.

• We continue to like Inari due to: 1) RF, which benefits from the transition to 5G and rising content per device; 2) laser devices, which are boosted by increasing biometric and augmented reality (AR) applications in smartphones; and 3) LED, which rides on rising demand for high-resolution billboards in shopping malls.

Source: AmInvest Research - 19 Apr 2019