Investment Highlights

• We maintain our BUY call on Inari Amertron (Inari) with a slightly higher fair value (FV) of RM3.69/share (previously RM3.62/share).

• Our FV is pegged to an unchanged CY22F PE of 28x. This is at a 30% premium above our peer group CY22F PE of 21x for outsourced semiconductor assembly and test (OSAT) companies, reflecting the company’s position as a proxy for the growth of 5G through its radio frequency (RF) business. We maintain our 4-star ESG rating, which translates to a 3% premium on Inari’s fair value (Exhibit 5).

• We have fine-tuned FY22F–FY24F core profit to account for expected return on investment from its private placement exercise, which the management intends to utilise within 30 months from the listing date on 30 July 2021. This is partially offset by higher cost of goods sold in view of the ongoing materials and logistics constraints.

• The group’s PAT margin continues to be resilient with 2QFY22, reaching its highest at 26%. This is a result of optimised operations with various business units sharing overheads as well as Inari’s focus on customized processes for new customers.

• Raw material shortage was a key issue for Inari in 1HFY22, particularly in its operations in China and Philippines. To mitigate the impact, the group has placed advance orders for certain materials up to 18 months and imposed a noncancellable policy to its customers. Inari also continues to work closely with all parties to meet the planning and demand of its customers by prioritising materials for key line items.

• Based on World Semiconductor Trade Statistics estimates, global semiconductor sales are expected to grow 8.8% YoY in 2022, reaching a size of US$601bil. Barring any unforeseen circumstances, Inari is well positioned to ride on the growth, supported by local E&E ecosystem and its current cash position which allows for capacity expansion and potential M&A activities.
• We remain upbeat on Inari’s fundamentals and outlook as it is set to benefit from the expected stronger demand for 5G devices in 2022. The group’s prospects stem from:
  (i) the resilience of its RF earnings due to higher chip complexity and content in 5G smartphones;
  (ii) strong net cash position of RM2bil as at Dec 2021, which translates to 17% of its market cap; and
  (iii) its plans to enhance and diversify revenue streams via joint ventures in outsourced semiconductor assembly and test manufacturing in China.

Source: AmInvest Research - 22 Feb 2022