Inari Amertron (Inari) has entered into a memorandum of understanding (MoU) with private equity fund management company, China Fortune-Tech Capital Co (CFTC) to jointly establish outsourced semiconductor assembly and test (OSAT) manufacturing business to cater for the demand in China. In addition, Inari will also inject its Amertron Technology (Kunshan) Co into the 55:45 joint venture (JV) company. Given CFTC’s vast connection in the China’s technology industry, we believe the proposed JV could help accelerate Inari’s expansion in China and diversify its income stream. Maintain Outperform call with an unchanged TP of RM4.75 based on 45x CY22 EPS. We remain upbeat on the ongoing 5G network roll-out across the global cities and commendable 5G smartphone sales by Broadcom’s key customer.

• Backed by a high-profile tech savvy investor. CFTC, a private equity fund management company founded in 2014, was established by a group of shareholders consisting of China’s largest semiconductor foundry player, SMIC. Its investments mainly focus on integrated circuit industry including semiconductor materials and electronic materials, integrated circuit design, equipment, IP services and tools.

• Injecting Amertron Technology (Kunshan) into the new set-up. Under the proposal, Inari will inject wholly-owned LED display and IR sensor business in China under Amertron Technology (Kunshan) Co together with capital contribution of RMB463m (RM716m) into the JV company for a 55% stake while CFTC will inject wholly-owned Yiwu Semiconductor International Corp together with capital contribution of RMB749m (RM1.1bn) into the JV company for the remaining 45% stake. In-short, it is estimated that the 55%-owned proposed JV company will have a start-up share capital of RM1.7bn.

• Riding on each other strengths. Under the proposed JV, it can only provide OSAT manufacturing business services within China and shall only focus on the local demand. Inari will provide technical assistance, knowledge and know-hows to the OSAT operations and it will also provide expertise to expand the business of Amertron Technology (Kunshan) Co and also at new plant sites in China. Meanwhile, CFTC will provide expertise, relationships and guidance to the JV on the business opportunities, including sales, marketing strategy, business development and risks within the regulatory frameworks of China. It will also help to source local talents for the operations of these plants as well as local leadership on the physical set-up of plants and environmental compliance.

Source: PublicInvest Research - 20 Oct 2021