Inari Amertron (Inari) registered a lower core profit of RM203m (YoY- 3.7%) for 1HFY23, dragged by lower loading volume in radio frequency segment. Nevertheless, the first half results were in line with our and the consensus projections, making up 55% and 52%, respectively. Following the share price retracement, it is now trading at a forward PE of 22x, which is still below its 5-year average of 26x. Pending the outcome of the analyst briefing today, we reiterate our Outperform call with an unchanged TP of RM3.74. A lower second DPS of 2.2sen (vs 2QFY22: 2.8sen) was declared for the quarter.

• Weaker YoY sales. During the quarter, Inari’s revenue slipped 4% YoY to RM402m, dragged by weaker sales from optoelectronics segment, which is its second largest sales contributor. Stripping out foreign exchange loss totalling RM24.6m, 2QFY23 core earnings rose 9% YoY to RM118.1m, attributed to higher earnings contribution from the radio frequency (RF) segment. Gross margin improved from 31.5% to 32.2% on the back of higher utilization for the RF segment.

• Eyeing a new footprint in Malaysia. The utilization for RF segment was estimated to be around 80% in 2QFY23. Meanwhile, its 54.46%- owned joint-venture with China Fortune-Tech Capital Co is currently working on its new outsourced semiconductor assembly and test (OSAT) manufacturing plant in Yiwu, which is targeted to commercialise by 2HFY24, the Group is eyeing new opportunities in Malaysia’s OSAT to ride on the trade diversion from China and US.

• Back to normal. After missing its Dec quarter targets due to iPhone supply shortages, Apple forecast a better setup for the March quarter as iPhone production had returned to normal levels. Also, it projected a higher gross profit margin in its fiscal 2Q.

Source: PublicInvest Research - 27 Feb 2023