Investment Highlights

• We maintain BUY on Inari Amertron (Inari) with unchanged forecasts and fair value of RM2.45/share, pegged to a CY22F PE of 23.5x.

• Key takeaways from Inari’s 4QFY20 conference call:
  • Results summary: FY20 core profit of RM148mil declined 22% YoY mainly attributed to lower optoelectronic sales, lower production shipments due to Covid-19 lockdowns, and a change in product mix (Exhibit 1).
     
  • Updates by product segment:
     
    •  Inari’s radio frequency (RF) division’s production ramp-up plans are intact with all eight system-inpackage (SiP) lines have been in production at its P34 plant since July 2020 at approx. 70% utilization currently. The group added a ninth line and targets to run it by mid-Sept 2020, prepping to maximize utilization to cater for the demand upswing.
       
    •  Optoelectronics sales in the automotive segment have yet to show significant improvement but industrial products have fared slightly better. Due to the weak market conditions, sales are still on a spot order basis. Meanwhile, fiber optic products, particularly chip on carrier (CoC) packaging solutions, are seeing a pick-up in demand.
       
• Partnership and customer updates: Inari’s joint venture PCL Inari Technologies (PCLI) has started shipments of optical modules since June 2020 at P34, while its recently announced JV with MIT Semiconductor to design and assemble semiconductor manufacturing process tools is supporting the group’s goal to diversify its revenue base.
  
  Inari’s new customer in Clark, the Philippines, is setting up front assembly lines after completing back-end testing setup in June 2020 while its Swiss-based customer’s production facility has been installed at P34 with its first product qualification completed.
   
• 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) its efforts to enhance and diversify revenue streams.

Source: AmInvest Research - 1 Sept 2020