Led by yield recovery coupled with higher content growth coming from new flagship smartphone, Inari Amertron is expected to achieve stronger Radio Frequency (RF) utilization in the subsequent quarters. Management has set sights on expanding its manufacturing capacity floor space from 2.15m sq ft to 4m sq ft in the next 2 years across Malaysia, China and Philippines. Meanwhile, revenue contribution of the RM150m coming from its new customers are likely to kick in towards the 4QFY24F. Management has also established a new team to explore on advanced packaging. We reiterate our Outperform call with an unchanged TP of RM3.62 based on 35x FY25 EPS.

• Expecting a significant improvement in RF utilization. In the last quarter, the group experienced an i) unexpected glitches in electricity supply, ii) new packaging and iii) new product engineering, resulting in lower yield. It is now expected to see RF utilization to surpass 90% in 2QFY24, up from 80% in the previous quarter. The increasing RF utilization at P13 Plant is also contributed by higher content growth of 10%-15% and higher testing time for the new flagship smartphones, which require higher placement accuracy 25 um to 15 um as components become smaller and lighter. Management has set a strong RF revenue target of RM1bn for FY24F, an increase of 25% YoY.

• YSIC project bearing fruits soon. The phase 1 plant under the 54.5%-owned subsidiary, Yiwu Semiconductor International Corp, is expected to be completed by Dec-23. It is currently undergoing qualification process for the production lines. The new plant, which is catered for the wafer-level packaging for smart phone and smart watch applications, is expected to kick start commercial operation by June- 24. Management expects to ramp up its sales growth at a CAGR of 20%-30% for FY25-27 and it should reach sales of RMB1bn (RM662m) upon full capacity utilization. It also has plans for the 2nd fab soon.

• Update on new projects. The memory products using stacked die technology at Plant 34, Penang is progressing well with another 4 lines in the pipeline, bringing to a total 8 lines in the next 6 months. Management expects to see significant contribution by 4QFY24F. Meanwhile, the high-power LED project at P21 plant, Penang and Clark, Philippines plants are currently undergoing various qualification, engineering and reliability stages. Boosted by the booming artificial intelligence, the demand for optical transceiver products is picking up in the Philippines and they are ready to serve two key foreign customers. CK2 is ramping up capacity expansion to support for more orders by 3Q 2024. In-short, management has targeted total revenue of RM150m from all these new projects in FY24F.

Source: PublicInvest Research - 27 Nov 2023