Investment Highlights

• We maintain BUY call on Inari Amertron (Inari) with an unchanged fair value (FV) of RM3.53/share, based on CY24F 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 .

• Our forecast earnings are maintained as 1HFY24 earnings of RM177mil came within expectation, 45% of our full-year estimate and 48% of consensus forecast.

• The group declared an interim dividend of 2.2 sen per share, which brought 1HFY24 total dividend to 4.4 sen per share (- 8% YoY).

• YoY,1HFY24 revenue improved marginally by 2% thanks to better volume from the radio frequency (RF) segment that was driven by new smartphone launches. However, its net profit declined by 14% YoY, due to gross margin dropping 7%-point to 23.8% and higher depreciation charges. The lower gross margin was impacted by lower production yield caused by power interruptions in Penang.

• On a QoQ basis, 2QFY24 net profit increased by 5% in tandem with the rise in revenue by 8%, thanks to higher sales growth in RF and optoelectronics segments which we believe was likely due to the launch of new 5G-enabled smartphone models.

• Looking ahead, we are cautiously optimistic on its RF business segment which constitutes 64% of total 2QFY24 revenue vs. 63% in 2QFY24. We expect bumpy quarters ahead as consumer electronics sentiments remain soft.

• However, we foresee continuous growth over the longer term, driven by increasing content requirements for RF filters, particularly with higher complexity needed for new generations of 5G-and-beyond devices.

• From a valuation perspective, the stock currently trades at an attractive CY24F PE of 27x vs. its 3-year peak of over 30x.

Source: AmInvest Research - 27 Feb 2024