Overview. Inari’s 1QFY22 had another record-breaking financial result, reporting a 49% increase in core profit yoy and 24% rise qoq to RM106m. This was due to improvement in sales across all business segments with the Radio Frequency (RF) business remaining as the major contributor to strong growth in revenue (+24% yoy, +19% qoq).

Key highlights. Inari’s 1QFY22 had surpassed its best-ever EBITDA margin level achieved in 4QFY21 where it expanded 2.8ppt yoy and 0.5ppt qoq to 32.2% on higher volume loadings from RF products and improved net opex to sales ratio in 1QFY22 at 67.8% (1QFY21: 68.3%; 4QFY21: 70.6%).

Against estimates: above. Inari’s 3MFY22 core profit was above ours but broadly inline with consensus’ estimate at 31% and 27%. We revisit our earnings assumption and revised up FY22/23/24 earnings forecast by 30%/36%/43% as we factor in stronger contribution from RF segment as well as improvement in all its business segments i.e. Opto-electronics, fibre optics and generic.

Dividend. A higher first interim DPS of 2.8 sen was declared (1QFY21: 2.0 sen) implying a dividend payout of 95%.

Our call. Maintain BUY call on the stock with new TP of RM4.85 (from RM4.10), pegged at 40x PER on FY22 EPS of 12 sen. We remain optimist over Inari’s RF business segment given surging 5G smartphone sales globally from new purchases and upgrades that would underpin Inari’s continued strong earnings growth.

Source: BIMB Securities Research - 15 Nov 2021