Investment Highlights

• We maintain our BUY recommendation on Inari Amertron (Inari) with unchanged fair value of RM3.31/share, pegged to a CY22F PE of 28x and make no changes to our 4-star ESG rating. We raise FY21F forecasts by 4% to account for the guidance provided for the group’s radio frequency (RF) division which is expected to grow by 80% YoY.

• Key takeaways from Inari’s 3QFY21 online briefing:
   
  • Results summary: 9MFY21 core profit surged 123% YoY mainly due to: (i) 29% YoY higher revenue as its RF product sales jumped 74% YoY, offsetting 6% and 22% YoY declines in sales of optoelectronics and generic products respectively; and (ii) optimization of production efficiency attributed to the group’s RF line expansion. The group recorded its best 3Q earnings to date.
     
  • Updates by product segment: 1) RF: The group’s 22 advanced system-in-package (SiP) lines were loaded well despite seasonally low periods; 2) Optoelectronics: Inari is seeing improvement in the loading for its automotive and industrial divisions for up to 6 months. Despite longer material lead time for major materials, the group has managed to secure supplies ahead of time and will monitor the ongoing situation. Meanwhile, higher demand for fibre optic products especially chip-on-carrier (CoC) solutions continues; 3) Generic products: This division is being impacted by shortages in substrates but expects improvement in the upcoming quarter.
     
  • Updates on new business line-ups: Its project with Customer 1 to assemble optical transceiver modules targets product qualification by end-May and mass production to begin in June 2021 (1-month delay). The transferring of its 2nd product line is in progress. Meanwhile, discussions with US-based chip and module assembly Customer 2 is at the technical matching stage while progress with its US-based power module assembly Customer 3 is at a product readiness stage, having completed prototype building and is targeting pilot line setup by end of June 2021.
     
  • Updates on existing partnerships: PCL Inari’s (PCLI) 2nd phase of transfer to P34 is pending movement control order (MCO) clarifications and will be hiring 90 more operators by June 2021.

Source: AmInvest Research - 25 May 2021