Investment Highlights

• We maintain our HOLD recommendation on Inari Amertron (Inari) with unchanged forecasts and fair value of RM3.13/share, pegged to a CY22F PE of 28x after reflecting our 4-star ESG rating on the group.

• Inari has proposed a private placement of 10% of its total issued shares (333mil ordinary shares) to an independent 3rd party investor at an indicative issue price of RM3.20 per share to raise RM1,049.0mil in net proceeds for its capex, acquisition and investments. The placement is expected to be completed in 2HCY21.

• According to its announcement in Bursa Malaysia, the rationale of the placement is to accelerate its plans to acquire semiconductor and OSAT-related companies without tapping into its net cash of RM755.3mil as at 31st Dec 2020. The placement, together with the full exercise of all its outstanding ESOS options, would increase net cash to RM2,021mil.
   
• The placement and full exercise of all its outstanding 91.5mil ESOS options with an average exercise price of RM2.37 each which would raise RM217.0mil in proceeds leading to a total of RM1,265.8mil raised from both exercises. Assuming an interest rate of 2%, interest income after tax of RM19.2mil would increase FY22F earnings by 5.6% with an adjusted EPS of 9.7 sen, which is a 7.6% dilution from our current forecasted EPS. This in turn would reduce our fair value to RM2.89/share.
   
• The group intends to expand its production capacity for RF lines in line with the growing demand for 5G and will continue to work on improving the utilization of its existing opto-electronics and other business units as well as increase investments in automation to improve its margins moving ahead.

• We continue to like Inari due to its role as a proxy for the growth of 5G through its radio frequency (RF) business which is set to benefit from the expected increase in demand for 5G smartphones, however we deem the stock to be fairly valued.

The group’s positive prospects arise from: (i) resiliency in RF earnings due to higher chip complexity in 5G phones, (ii) potential growth in laser devices from more biometrics and augmented reality applications, and (iii) its efforts to enhance and diversify revenue streams.

Source: AmInvest Research - 7 May 2021