• Overview. 3QFY20 core profit slumped 29% yoy and qoq to RM27m in tandem with weaker revenue. Core profit figure arrived after adjusting for EI amounting RM8.1m in relation to unrealised gain on forex.
• Key highlights. Lower revenue reported during yoy and qoq was primarily pressured by weaker sales volume in optoelectronics products and lower sales volume at its Malaysia, China and Philippines plant affected from lockdown and movement control order (MCO) to contain the spread of Covid-19.
•  Against estimates: inline. 9MFY20 core profit fell 26% dragged by higher net opex, depreciation and taxation. Overall, 9MFY20 core profit trailed our and consensus’ estimate at 58% and 68% respectively.
• Dividend. A third interim DPS of 1.0 sen was declared (3QFY19: 1.0 sen), implying a dividend payout of 93%.
• Earnings revision. We cut our FY20-22F earnings by 23%/23%/8% (Table 3) as we adjust lower sales volume across all products given uncertainty to market demand amid Covid-19 pandemic.
• Outlook. We are less sanguine over Inari’s business prospects as we believe its main business segment, RF testing would be negatively impacted from slowdown of demand for smartphone during lockdown and MCO. In addition, we expect some delays in 5G adoption following Covid-19 pandemic which have caused drawback to its RF division.
• Our call. Maintain SELL with lower TP of RM1.23 (from RM1.40). We rolled over valuation to FY21, implying FY21/22F PE of 25x/20x.

Source: BIMB Securities Research - 22 May 2020