• Overview. Inari’s 3QFY22 core profit grew 20% yoy to RM89m in tandem with higher revenue and better sales for its high-margin products (RF products) which saw EBITDA margin expand 5ppts to 35% from 30%. However, on qoq basis, core profit fell 18% on lower sales volume loadings in RF business segment and declined in other business segments sales which were affected by raw material supply-chain constraints globally.

• Against estimates: below. 9MFY22 core profit rose 27% yoy to RM303m on stronger revenue contribution from RF business segment, higher interest income from fund placement, and favourable forex rates. Overall, 9MFY22 core profit trailed our forecast but inline with consensus’ estimate at 68%/76% respectively.

• Dividend. Inari declared a third interim DPS of 2.20 sen (3QFY21: 4.0 sen). This implies a dividend payout of 92% and brings 9MFY22 DPS of 7.8 sen.

• Earnings revision. We cut FY22/23/24 earnings forecast by 11-14% (Table 3) as we revised down overall Inari’s business segments contribution; RF, fibre optics, opto-electronics, and etc. following the impact of raw material shortage due to supply chain bottleneck as well as prolong Covid-19 lockdown in China would interrupt overall productions’ capacity. Still, we remain optimistic on Inari’s long-term business prospects underpinned by aggressive migration of 4G to 5G globally, particularly 5G adoption in smartphones would benefit Inari’s RF business segment.

• Our call. Maintain BUY at a lower TP of RM3.75 (from RM4.85) as we roll forward our valuation base to FY23 and pegged at 30x PER on FY23F EPS of 12.5 sen. At the current price level, the stock offers an attractive buying opportunity to investors. We believe the decline in the share price was due to negative market sentiment on concern of worsening supply chain bottleneck owing to prolong Covid-19 lockdown in China as well as Ukraine-Russia war, and sky-high inflation which led to slower economic growth.

Source: BIMB Securities Research - 17 May 2022