• Overview. 1QFY21 core profit surged 48% yoy and 91% qoq to RM70m on the back of higher volume loadings and better sales for high margin products. As a result, EBITDA margin expanded 4.9ppt yoy to 29% from 24.5%.
• Key highlights. Inari’s key customer in Singapore recorded a significant increase in sales by 24% yoy and 122% qoq (Table 2) which offset slower sales in other markets. We believe this was attributable to the launch of a new flagship smartphone released in October.
• Against estimates: above. Overall, 3MFY20 core profit was above ours, but broadly inline with consensus’ estimate at 45% and 30% respectively. We revised higher our earnings estimate by 58%/69%/67% as we expect better contribution from all its products (RF testing, fibre optics & opto-electronics and integrated circuit & packaging) and higher margin through 5G technology adoption.
• Dividend. A first interim DPS of 2 sen was declared (1QFY20: 1.3 sen), implying a dividend payout of 92%.
• Our call. Upgrade to BUY with new TP of RM2.90 (from RM1.23) which implies FY21/22F PE of 39x/29x. We believe this is fair as we foresee the acceleration in 5G technology adoption worldwide amid Covid-19 pandemic would benefit Inari’s earnings growth in the near-term.

Source: BIMB Securities Research - 25 Nov 2020