• Overview. 2QFY20 core profit plunged 34% yoy and 20% qoq in tandem with weak revenue. This was due to lower sales volume from optoelectronic products, higher depreciation and unfavourable forex.

• Key highlights. On yoy basis, Inari reported disappointment revenue from major market segments (Singapore, -7% and Malaysia, -25%, refer Table 2). We believe this was due to slowdown in global smartphone sales which affected optoelectronics and RF products.

• Against estimates: inline. Overall, 1HFY20 core profit of RM86m was broadly inline with ours but trailed consensus’ estimates at 44% and 40% respectively.

• Dividend. A second interim DPS of 1.0 sen was declared (2QFY19: 1.5 sen), implying a dividend payout of 84% and brings its total DPS to 2.3 sen for 1HFY20.

• Outlook. Management is cautiously optimistic over 5G impact on its RF division in near-term as Covid-19 outbreak has caused disruption in the semiconductor supply chain and provide drawback to its RF division.

• Our call. We retain our earnings forecast and maintain SELL with TP of RM1.40, implying an FY20/21F PE of 23x/22x.

Source: BIMB Securities Research - 26 Feb 2020