Excluding net foreign exchange (FX) loss amounting to RM7.7m and gain on disposal of PPE (RM0.2m), Inari Amertron (Inari) registered a lower 1HFY24 core profit of RM179.5m, down 11.7% YoY. The weaker results were attributed to an increase in electricity rates as well as losses in work-inprogress items arising from unstable glitches in electricity supply from the grid in 1QFY24. Nevertheless, the results were in line with our and market expectations, making up about 48% of full-year numbers, respectively. We reiterate our Outperform call with an unchanged TP of RM3.62 based on 35x FY25 EPS. A second DPS of 2.2sen (vs 2QFY23: 2.6sen) was declared for the quarter.

• A slight increase in topline. During the quarter, Inari’s revenue climbed from RM402.4m to RM414.1m, underpinned by higher radio frequency and optoelectronics sales. Radio frequency segment contributed 64% of total revenue followed by Optoelectronics, 30% and Generic, 6%. For the 1HFY24, smartphone segment remained the largest sales contributor, making up 64%, followed by Datacom (14%), Automotive (10%), Industrial (6%) and Generic (6%).

• 2QFY24 core earnings fell 20.6% YoY. Stripping out net FX loss totaling RM7m and gain on disposal of PPE (RM0.2m), 2QFY24 core earnings fell 20.6% YoY to RM93.8m, as a jump in finance income (+25%) and lower administrative expenses (-41.2%) were offset by higher operating costs (+15.9%) due to set up costs for new products as well as increase in electricity costs. Gross margin weakened from 32.2% to 23.6% on the back of higher operating costs.

• Strong balance sheet. As of 1HFY24, the group’s is sitting in a coffer of RM1.8bn with zero borrowings. It has allocated RM1bn for capex, acquisition and investment opportunities.

• Global smartphone shipments set to rebound for 2024. According to the latest publication (dated on 23th Feb 2024) from the International Data Corporation, it projects that global smartphone shipments to reach 1.2bn units in 2024, a 2.8% growth YoY followed by low singledigit growth through 2028. Although the shipments are still below prepandemic levels, it believes the market has bottomed out. Apart from device replacement cycles and rising demand in emerging markets, recent technological developments have also spurred buying interests. Most notably, foldable smartphones continue to grow rapidly with YoY growth of 37% to 25m shipments this year. In addition, the idea of nextgeneration artificial intelligence features on the smartphones has become the hot discussions, pushing more investments into this area. IDC forecasts that 170m next-gen AI smartphones will be shipped in 2024, representing almost 15% of the total smartphone market.

Source: PublicInvest Research - 27 Feb 2024