Investment Highlights

• We maintain BUY call on Inari Amertron (Inari) with an unchanged fair value (FV) of RM3.53/share, based on unchanged FY24F of PE of 27x – 1 std dev above its 5-year median. We continue to ascribe a 4-star ESG rating, which translates to a 3% premium to Inari’s FV (Exhibit 4).

• We maintain our forecast earnings for FY24F but increased FY25F by 3% to reflect better product mix. We also introduce FY26F earnings with a revenue growth assumption of 10% and gross profit margin of 29%.

• Inari’s FY23 net profit of RM320mil came in within expectations, spot on to our forecast but within forecast consensus at 97%.

• YoY, FY23 earnings declined by 18% in tandem with a 13% contraction in revenue to RM1,354mil. Its group margin deteriorated 4%-points YoY as a drop in loading volume impacted economies of scale and higher operating cost, driven by increased energy costs.

• On a QoQ basis, 4QFY23 revenue improved by 8% thanks to higher sales growth in the radio frequency (RF) business segment which we believe was likely due to the launch of new 5G-enabled smartphone models. 4QFY23 net profit rose by 39% due to better operational efficiency as EBITDA margin improved by 4.7%-points to 27%.

• Looking ahead, we are optimistic about the longterm prospects of this segment. We foresee continuous growth, driven by increasing content requirements for RF filters, particularly with higher complexity needed for new generations of 5G-andbeyond devices.

• In addition, the company has successfully secured a few more new customers, all of whom are involved in a similar product range, paving the way for new production innovations by their technical know-how. Anticipating maiden contributions in 2024 and beyond, these new customers undergird stronger growth prospects for Inari.

• From a valuation perspective, the stock currently trades at an attractive CY24F PE of 27x vs its 5-year peaks of over 35x.

Source: AmInvest Research - 30 Aug 2023