Analysts continue to favour Inari Amertron as FY22 meets expectations

KUALA LUMPUR (Aug 22): The majority of research firms covering Inari Amertron Bhd — 10 out of 15 — have kept their target prices (TPs) and 'buy' calls on the company, which reported record net profit and revenue for its financial year ended June 30, 2022, in line with consensus expectations.

They continue to believe that Inari Amertron will have a favourable future as a proxy for 5G network roll-out, amid resilient demand for 5G mobile devices and the upcoming launch of Apple Inc’s iPhone 14 models next month.

One of them is Public Investment Bank Bhd, which has reiterated its “outperform” call with an unchanged TP of RM4.13 on Inari Amertron, a leading provider of outsourced semiconductor assembly and test (OSAT) services to well-known local and multinational manufacturers of electronic products.

Public Investment believes Inari Amertron, a key component supplier of smartphone maker Apple, is going to benefit from its anticipation of sustainable iPhone sales.

“According to industry sources, Apple has requested that suppliers build a similar iPhone production as in 2021, counting on an affluent clientele and dwindling competition to weather a global electronics downturn.

“The tech giant has instructed assemblers to make 90 million iPhone 14, on par with last year, despite deteriorating projections for the smartphone market. The California-based company still expects to assemble roughly 220 million iPhones in total for 2022, also about the same level as last year.

“Meanwhile, Hon Hai Precision Industry Co, which assembles most of the world’s iPhones, hinted at Apple’s resilience two weeks ago. Apple’s projections suggest its confidence in overcoming a slump in spending on smartphones and other devices,” said Public Investment.

Likewise, Kenanga Investment Bank Bhd is keeping its 'outperform' call on Inari Amertron, with a TP of RM3.45.

“Putting the seasonal low cycle behind, we look forward to the highly anticipated annual launch of the new US smartphone in September. We learnt that the customer is requesting more RF (radiofrequency) testers to be added which further reinforces our optimism for the company.

“We believe this added capacity could be purposed for a potentially earlier release in September instead of its typical mid-September schedule as a cautionary measure to avoid any component supply disruption.

“In addition, channel checks suggest that the US smartphone maker may increase its selling prices (while maintaining production volumes year-on-year) to factor in the higher cost of production which could shield its supply chain vendors like Inari from the risk of margin compression,” Kenanga analyst Samuel Tan said.

AmInvestment Bank Bhd has also kept Inari Amertron on 'buy', with a fair value of RM3.72, as it retains its net profit forecast for the company's FY23 at RM461.5 million, and FY24 at RM501.2 million. For FY25, it forecast that net profit will see a conservative growth of 3.8% to RM520.4 million, given expectations of moderating semiconductor growth.

“Inari Amertron has acknowledged a projection from Gartner Inc that global semiconductor revenue could decline by 2.5% to US$623 billion in 2023 as chip shortages continue to ease. Furthermore, Gartner estimated that smartphone semiconductor revenue growth is slowing while the data centre segment will stay resilient with a growth of 22% in 2022.

“Recall that as of quarter three of FY22, Inari’s revenue has 64% exposure to smartphones and 12% to data centres,” AmInvestment Bank analyst Eric Hong said.

Hong also highlighted the company’s healthy balance sheet, with a strong net cash pile of RM2 billion (18% of market cap) as of June 2022, which should help Inari Amertron’s plan to enhance and diversify revenue streams via joint ventures in outsourced semiconductor assembly and test manufacturing in China.

Five lower their TPs

Of the 15 research firms covering Inari Amertron, five have lowered their TPs, with four of them keeping their 'buy' recommendations on the stock after the release of the tech company's results last week, while one — KAF Equities — revised its recommendation to 'hold' from 'buy', according to Bloomberg data.

One of those who lowered their TPs was CGS-CIMB Securities Sdn Bhd, which trimmed its fair value for Inari Amertron to RM3.15 from RM3.40 as its analyst Mohd Shanaz Noor Azam cut the tech company’s earnings per share for FY23 by 11% and for FY24 by 10%, on anticipation of softer mobile device demand amid risks of a global economic slowdown.

Nonetheless, Mohd Shanaz said CGS-CIMB expects favourable forex movement (ringgit appreciation versus US dollar) and higher adoption of value-added processes for RF chips, such as electromagnetic interference (EMI) shield, to help cushion against the demand slowdown.

Inari Amertron’s share price dropped 16 sen or 5.59% to close at RM2.70, valuing the group at RM10.02 billion.