• Inari 3Q22’s core earnings grew by 22% YoY to RM89m driven by better sales for its high-margin products – RF products which saw EBITDA margin improved by 4.9ppts to 35%.

• We remain upbeat on Inari's long-term business prospects supported by aggressive network migration to 5G.

• Its core earnings are projected to grow at a 3-year CAGR of 17% over FY21-FY24F in tandem with higher volume loadings for its RF segment following a steady take-up rate for 5G smartphone globally.

• We maintain our BUY call on Inari at a TP of RM3.75, pegged at 30x PER to 2023F EPS of 12.5 sen.

Earnings Growth Remains Resilient

Inari 3Q22 core earnings jumped by 22% YoY to RM89m underpinned by better sales for its high-margin products – RF products for smartphones which pushed EBITDA margin higher to 35% from 30% previously. However, 9M22 core earnings trailed our estimates as the company’s business operation was interrupted by China’s strict COVID-19 lockdown policies. This is expected to turnaround once China eases the restriction of the pandemic which is already happening in major cities (Shanghai, Beijing), to be followed by peripheral ones.

Brighter Outlook Ahead

We remain upbeat on Inari's long-term business prospects driven by aggressive network migration from 4G to 5G and therefore, a growing demand for 5G smartphones. We expect its core earnings to grow at a 3- year CAGR of 17% from FY21-FY24F in tandem with higher volume loadings for its RF segment following increasing 5G smartphone take-up rate globally. Gartner industry research firm estimates 5G smartphone production volume to expand by 45% YoY in 2022 to 808m units, representing 55% of global smartphone production which highlights the sector’s favourable prospect.

Maintain a BUY call with TP of RM3.75

We reiterate our BUY call on Inari with a target price (TP) of RM3.75, pegged at 30x PER to FY23 EPS of 12.5 sen. We believe the recent drop in share price was due to negative market sentiment as a result of supply chain disruption and inflation risks. This offers an attractive buying opportunity especially with solid global demand for RF products.

Source: BIMB Securities Research - 4 Jul 2022