Investment Highlights

• We maintain BUY on Inari Amertron (Inari) with unchanged forecasts and raise our fair value to RM2.45/share, pegged to a rolled-forward CY22F PE of 23.5x (previously RM2.01/share, pegged to a CY21F PE of 23.5x).
• Inari’s 4QFY20 core profit of RM42mil met expectations, bringing FY20 core profit to RM148mil after excluding net oneoff gains amounting RM3mil mainly due to gain on disposal of a property in Senai, Johor and forex gains which were offset by reversal of written down inventories. The results were in line with expectations, exceeding ours and consensus’ forecasts by 5% and 3% respectively.
• YoY: FY20 core profit declined 22% mainly due to: (i) an 8% lower revenue mainly due to lower optoelectronic sales from the automotive and industrial segments, (ii) lower production shipments in 3QFY20 due to lockdowns relating to Covid-19; (iii) changes in product mix; and (iv) higher depreciation.
• QoQ: Revenue slid 4% due to lower volume loading, but 4QFY20 core profit soared 58% mainly due to gain in disposal of property and lower effective tax due to reversal of deferred tax provision. This was despite lower volume loading, changes in product mix and unfavourable forex movement.
• Outlook: The group remains cautious on its prospects due to the disparity in the IMF’s June 2020 World Economic Outlookwhich projects a more gradual global recovery than previously forecasted while 2021 growth also has a higher degree of uncertainty, compared to the World Semiconductor Trade Statistics growth projections of 3.3% and 6.2% for 2020 and 2021 respectively for the global semiconductor market. However, higher volumes for Inari’s new and existing products are expected in FY21, which we believe would be mainly driven by the group’s radio frequency (RF) business underpinned by expectations that 1QFY21 will coincide with the cycle for new 5G phones. We note that there is a risk of less favorable USDMYR impact in revenue terms.
• We continue to like Inari due to its role as a proxy for the growth of 5G through its RF business, despite caution relating to the Covid-19 pandemic. The group’s positive prospects arise due to: (i) the resilience of its RF earnings due to higher chip complexity in 5G phones; (ii) potential growth in laser devices from more biometric and AR applications; and (iii) longer term growth in LED riding on higher demand of highresolution shopping mall billboards.

Source: AmInvest Research - 28 Aug 2020