Inari Amertron (Inari) 1QFY22 core earnings surged 33% YoY to a new quarterly record high of RM102.6m after stripping out the FX movements. The results were in line with both our and consensus projections at 27.6% and 26.6% respectively. We raise our earnings forecast for FY22-23F by about 3%- 4%, to account for better-than-expected earnings margin from its RF segment. We reiterate our Outperform call with a higher TP of RM5.31 as we roll-over our valuations to FY23F based on 45x EPS. We continue to like Inari for its role as a proxy to stronger 5G adoption globally and should also benefit from the US smartphone’s supercycle. Meanwhile, Inari announced a higher DPS of 2.8sen for the quarter (vs 1QFY21: 2sen).
- Record quarterly sales. Inari’s 1QFY22 revenue rose 24% YoY to RM431.1m, due to growth across all business segments. Its radio frequency (RF) segment remained the key growth driver, attributed to stronger volume loading from primary RF customer, Broadcom following the launches of new generation 5G smartphones by its US end-customer. 1QFY22 core earnings jumped 33% YoY to RM102.6m, as gross margin expanded from 28.1% to 30.5%. The stronger results were also attributed to higher capacity utilization given that Penang has moved into Phase 2 of the national recovery plan since 7 July 2021, which allows the group to operate with a higher 80% workforce capacity.
- Upbeat outlook. We gather that Inari is allocating RM100m capex in FY22F, mainly for three new System-in-Package (SiP) lines, eight electromagnetic shield system and wafer processing equipment. The Group is positive about the new integrated system for its module business at P55, a new 50k sq ft 5-storey building extension, located next to P13 in Bayan Lepas. The Group is preparing for the pilot line to qualify for assembly and testing of automotive power module for a new US customer. We think this could be a new growth engine for the company- contributing at least 15% for the group’s topline in the next 3 years.
- Retaining Outperform call. We raise our earnings forecast for FY22-23F by < 4%, to account for stronger contribution from its RF segment, considering that the US smartphone maker has requested its suppliers to boost production output for its next-generation model by 20%. Our TP is subsequently raised to RM5.31, after rolling over our valuations to FY23F. Maintain Outperform.
Source: PublicInvest Research - 15 Nov 2021