• 4Q18 core earnings fell 38% yoy and 48% qoq to RM31.4m on lower production despite strengthening in USD/MYR rate.

• Overall, 4Q18 core earnings were inline with ours but trailed consensus estimates at 96% and 87% respectively.

• We expect Inari to face some challenge owing to moderate smartphone sales and uncertainties from the US-China trade war that could affect production.

• Maintain HOLD with a TP of RM2.17. At out TP, the stock implies FY19F PE of 23x before easing to 19x in FY20F.

Disappointment yoy

4Q18 core earnings fell 38% yoy to RM31.4m in tandem with lower revenue recorded despite strengthening USD/MYR rate. As guided by management, revenue declined following US’ moves against ZTE Corporate which affected some orders from the optoelectronics segment during 4Q18.

Lower qoq earnings

On qoq basis, revenues fell 8% on lower production, translating to a 48% decline in core earnings. Core earnings were also weighed down by the surge in effective tax rate arising from its subsidiary, Inari Technology S/B.

FY18 earnings supported by 9M18

FY18 core earnings grew 25% owing to the strong 9M18 performance. Overall, FY18 core earnings were inline with ours but trailed consensus estimates at 96% and 87% respectively.

Cautious outlook

We expect Inari to face some challenges in maintaining its sales growth especially under the RF segment given moderate growth in smartphone sales and uncertainties from the US-China trade war.

Dividend declared

A fourth interim and special dividend of 1.6sen and 0.4sen was declared respectively, translating to YTD DPS of 8.4sen, lower than FY17 DPS of 9.8sen. This implies a dividend yield of 3.5% at current level. Its FY18 DPS made up 86% of our estimate.

Maintain HOLD at RM2.17 TP

We maintain HOLD with a TP of RM2.17 (WACC: 8.6%, g: 5%). We remain cautious on the outlook as we see moderate smartphone sales and US-China trade negotiations could pose a threat to the company.

Source: BIMB Securities Research - 29 Aug 2018