Inari Amertron Bhd has recently taken the spotlight due its record breaking fourth quarter results.

For the fourth quarter ended June 30, 2021, net profit was up 149% to RM88.36mil from RM35.47mil. Revenue jumped 54.85% to RM361.32mil.

Thus for the full year, net profit was up 112.18% to RM330.47mil while revenue increased to RM1.43bil from RM1.06bil last year.

Inari also raised about RM1.03 billion through a private placement following the issuance of 333 million new shares at RM3.10 per share at end-July 2021.

The group plans to utilise the proceeds for potential capex, acquisition and investment. Management has told some analysts that it plans to invest in assembly lines for a newly-created module assembly division for its new US-based customer.

With all of its growth plans pretty visible and solid, most analysts have now upgraded Inari’s target price. CIMB has increased it to RM4 based on a PE of 34x its 2022 forecasted earnings of RM414.7mil.

Meanwhile RHB increases its FY21 to FY23 earnings by 8.4% to 9.3%, after imputing improved margins for the RF business and higher interest income. Its target price is lowered to RM4.27 pegged to an unchanged 40x FY22F P/E.

RHB adds that Inari continues to be its top pick in the technology sector as it stands to benefit from the mid-term structural growth of the 5G story and growing demand for semiconductor chips.

At RM3.69, Inari might not a very attractive buy to retailers. So what if hits the RM4.27 target price? That is only a 15% to 16% upside.

Well how about if there was a way cheaper proxy to Inari? How do you gain exposure to one the best technology stocks on Bursa Malaysia at a cheaper cost?

Insas Bhd – tracking Inari’s movement

Glaring us right in the face is Insas Bhd, which owns 16.33% or 545.5mil shares in Inari.

At its price of 93.5 sen as of Aug 11, Insas has a market capitalisation of RM648.28mil.

Insas is controlled by Datuk Seri Thong Kok Khee,

Thong, who also serves as the non-executive director of Inari, owns a direct stake of 0.07% or 2.15 million shares in the company.

Insas has started moving since Inari’s uptrend began two weeks ago. From 88 sen on Aug 3, the stock now stands at 93.5 sen.

Nonetheless on its own, Insas is a decent company with strong financial backing.

Based on its latest cash position of RM573.58mil, the stock has cash per share of 82.7 sen. It is also only trading at a price earnings ratio of 2.66 times.

The stock currently offers a dividend yield of 2.13% based on the 2 sen dividend it gave.

For the nine months to June 30, 2021, Insas has so far recorded net profit of RM217.26mil from a previous loss of RM2.42mil last year. The good results were due to the buoyant capital markets last year, and disposal of shares.

For the third quarter to June 30, Insas’ net profit of RM69.72mil from a previous loss of RM51.48mil was also helped by the higher equity contribution from Inari of RM12.6mil.

The Opportunity

Currently, Inari contributes roughly 8 sen operating profit to Insas every year.

Based on Inari’s growth guidance by Inari’s management, this 8 sen contribution should then be expected to double to 16 sen over the next two years.

Meanwhile, Insas’ other businesses in the financial sector, namely corporate advisory, stock broking, financial lending and investments are expected to generate another 9 sen to 15 sen per annum to Insas.

For the nine month period, Insas already generated earnings per share (EPS) of 32 sen.

Based on this EPS of 32 sen:

PE 6X = RM1.920

PE 8X = RM2.560

Now even without taking into account the contribution from Inari, Insas’ own assets amount to RM2.36 per share.

If we were to assume that the fair value of Insas is its net tangible asset plus its 16% holding in Inari, thus Insas’ revised net asset value (RNAV) with Inari will be as follows

1. When Inari RM3.60, Insas is RM5.19

2. When Inari is RM4.00, Insas is RM5.50

3.When Inari is RM4.40, Insas is RM5.88.

For now, Insas is only 93.5 sen.

For those who want an even cheaper entry to Insas, they may consider Insas warrant C which came to life on March 5, 2021.

With a five year lifespan, the warrant has an exercise price of 90 sen. The warrant is currently trading at 40 sen.

Insas’ business

Insas is most known for being the owner of M&A Securities Sdn Bhd, a stock broking company providing trading services for securities listed on Bursa Malaysia.

However, it has other principle business segments which consist of: 

1. stock broking, provision of corporate finance & advisory services and structured finance 
2. investment holding & trading;
3. technology & IT related services;
4. retail trading and car rental;
5. property investment & development.

The group’s main operations are located in Malaysia and Singapore and its principal associate company’s operations are located in Malaysia, Philippines and China.