Investment Highlights

• We maintain our HOLD call on Inari Amertron (Inari) with a higher fair value of RM1.59/share. We roll forward our valuation from FY20F to CY20F PE of 17.5x, while maintaining our earnings forecast.

• Apple’s keynote event this morning in Steve Jobs Theatre unveiled three new models – the iPhone 11, 11 Pro and 11 Pro Max. Pre-orders for all 3 models begin this Friday with price tags of US$699, US$999 and US$1,099 respectively.

• The iPhone 11 replaces last year’s entry level iPhone XR but was priced US$50 lower. We deem Apple’s decision for a price reduction is due to the underwhelming demand for last year’s iPhone XR.

• While none of the 3 models supports 5G connectivity, we noted from the specification sheet that the latest iPhone models support Band 42 (3500MHz) and Band 48 (3600MHz)

• These frequencies are within the 3.5GHz range that is emerging as a core band for 5G in the mid-frequency category, owing to its capability to provide a good mix of the capacity (amount of data transfer) and coverage (the distance the signals travel). As detailed in GSMA’s 5G Spectrum Position paper, 5G needs spectrums in three key frequency range — low (sub-1GHz), mid (1–6GHz) and high (above 6GHz).

• Recall that the long standing feud between Apple and Qualcomm was only settled in April 2019, leaving Apple with less than sufficient time to incorporate Qualcomm’s 5G modem in its latest iPhone. Historically, Apple has also been slower than its peers in terms of adopting new cellular technology, as seen during the 3G to 4G transition.

• However, we opine that the addition of these frequency bands serves as an early sign leading up to the adoption of 5G in the 2020 iPhone.

• The latest iPhone line-up also features a new A13 processor which promises better performance and efficiency, providing up to 5 hours of extra battery life compared with last year’s iPhone X. The entry-level iPhone 11 has an upgraded dual-camera setup while both the 11 Pro and 11 Pro Max get the range-topping triple-camera setup.

• From the keynote presentation, we feel that Apple is placing more emphasis on its software rather than hardware, such as Apple TV+ and Apple Arcade. This is in line with its strategy to focus on recurring subscription income, given the slowdown in hardware sales.

• With 5G support expected to only materialise in the 2020 iPhone models, OSAT players who are in the supply chain for radio frequency (RF) may only see meaningful contribution next year.

Source: AmInvest Research - 11 Sept 2019