Investment Highlights

• We maintain our BUY call on Inari Amertron (Inari) and its fair value (FV) of RM3.72/share, pegged to an unchanged forward CY23F PE of 25x. We continue to ascribe a 4-star ESG rating, which translates to a 3% premium to Inari’s FV (Exhibit 4).

• Inari’s FY22 core net profit of RM392mil came in within expectations, almost on the dot of both our and consensus estimates. We retain our FY23F–FY24F earnings and introduce FY25F net profit with a conservative growth of 4%, given expectations of moderating semiconductor growth.

• YoY, the group’s FY22 revenue grew 8% while PBT leapt 27%. This stemmed from an FY22 PBT margin expansion of 4% points to 29%, thanks to the group’s efforts to take on higher margin orders coupled with a 3.4x surge in interest income.

• On a QoQ basis, 4QFY22 revenue slipped 7% to RM336mil as raw material supply constraints resulted in lower volume loading in optoelectronics and generic business segments.

• Inari has declared a 4QFY22 dividend of 2.2 sen, translating to a dividend payout ratio of 93%. However, we reckon that the high payout ratio will not affect the group’s expansion plans given its robust net cash position of RM2bil (18% of market cap) as of June 2022.

• The group has acknowledged a projection from Gartner that global semiconductor revenue could decline by 2.5% to US$623bil in 2023 as chip shortages continue to ease. Furthermore, Gartner estimated that smartphone semiconductor revenue growth is slowing while the data centre segment will stay resilient with a growth of 22% in 2022.

• Recall that as of 3QFY22, Inari’s revenue has 64% exposure to smartphones and 12% to data centres. We expect further guidance on the group’s progress on segment diversification in an investors’ briefing later today.

• Nonetheless, we remain upbeat on Inari’s fundamental outlook. The group’s favourable long-term prospects stem from: (i) the resilience of its radio frequency earnings and margins due to higher chip complexity in 5G devices and its applications; (ii) healthy balance sheet with a strong net cash pile; and (iii)its plan to enhance and diversify revenue streams via joint ventures in outsourced semiconductor assembly and test manufacturing in China.

Source: AmInvest Research - 22 Aug 2022