• Overview. 4QFY20 core profit fell 10.6% yoy on lower sales volume and higher depreciation. On qoq, core profit grew 37.6% despite weaker sales. This was due to reversal of deferred tax provision amount RM2.1m during the quarter.
   
• Key highlights. Inari’s key customer in Singapore which contributes 58% of revenue recorded a significant decline in sales by 26% yoy and 28% qoq (Table 2). We believe sales was affected from softer demand for smartphone during the lockdown and movement control order (MCO).

• Against estimates: inline. Inari’s FY20 core profit declined 22.8% to RM150.2m, primarily due to decrease in demand in optoelectronic products, changes in product mix and higher depreciation cost. Overall, FY20 core profit was in line with our and consensus’ estimate at 101% and 105% respectively.

• Dividend. A fourth interim DPS of 1.1 sen was declared (4QFY19: 1.0 sen), implying a dividend payout of 96% and brings its total DPS to 4.4 sen for FY20.

• Outlook. Despite positive outlook for 5G technology adoption towards semiconductor companies, we believe Inari’s large exposure to single customer and slowing demand for smartphone amid Covid-19 would pose downside risk to its earnings.

• Our call. Maintain SELL with TP of RM1.23, implying FY21/22F PE of 25x/20x.

Source: BIMB Securities Research - 28 Aug 2020