• We maintain our BUY call on Inari Amertron (Inari) but place our fair value under review pending clarification from the results briefing later. Inari’s share price has extended its FY15 uptrend, rising by 15% since our call in September.
• Inari posted a record 1QFY15 net profit of RM45mil on the back of revenue of RM274.95mil. The results were within our expectations and that of concensus. · Inari declared a dividend of 2.8sen (1QFY15 dps: 2.2sen).
• QoQ, Inari’s results were better by 13%, which closely reflected the favorable US dollar exchange rate. From our checks, the USDMYR exchange rate averaged at RM4.05 during the current quarter (+12% QoQ).
• YoY, Inari’s results had jumped by 35%, in tandem with its turnover increase of 24%. While the improved performance was attributed to the favorable US dollar exchange rate, we believe that this was also due to contribution from Inari’s new P13 plant which started operations in May. To recap, Avago, Inari’s key client, had consigned an extra 150 units of testers (+30% capacity) to meet its customers’ demand for its RF chips. The testers will be located in Inari’s new P13 plant, and are to be delivered throughout FY16F.
• Inari remains optimistic that the smartphone market will continue to show growth of 10% p.a. in 2015, despite some predicted slowdown in the general semiconductor market. · Inari’s plan is to continue to improve its Optoelectronics business’ margins (Amertron subsidiary) and ride on the continued growth of the smartphone market.
• While we wait for clarification on its RF business volumes for this quarter, we opine that Inari’s services continue to thrive from high demand of both premium and China smartphone manufacturers for Avago RF chips. · IDC reported that 355.2mil smartphones were shipped globally in 3QFY15 (+6.8% YoY), falling slightly short of its 363.8mil forecast (quoted from Information Week).
• Apple’s successful launch of the iPhone 6s drove up 3QFY15 shipments to 48mil (+22% YoY). Samsung still leads the overall worldwide smartphone market with 84.5mil smartphones shipped, while Huawei grew its shipments to 26.5mil, a whopping +60.9% YoY. We believe that this indicates continued robust demand for Avago’s chips.
• We leave our earnings estimates unchanged, pending further clarification from the results briefing later today. · Inari is currently trading at PE of 15x, above 1sd of its 3-year historical mean, but at approximately the average PE of its OSAT peers.

Source: AmeSecurities Research - 13 Nov 2015