KUALA LUMPUR (Nov 23): TA Securities Holdings Bhd has downgraded its call for Inari Amertron Bhd to “hold”, from “buy” previously, given the narrowed risk-reward potential after the group’s reported earnings for the first quarter ended Sept 30, 2023 (1QFY2024) came in below the research house’s expectations.

In a note on Thursday, TA Securities said Inari’s core net profit of RM85.8 million for 1QFY2024 (up 31.9% quarter-on-quarter, down 14.6% year-on-year) came in below the research house’s and consensus’ full-year estimates, at 21.8% and 21.5% respectively.

“On our end, results missed (the estimates), as the radio frequency (RF) segment’s improved loadings fell short of expectations. It is worth noting that historically, Inari typically observes a seasonally stronger 1HFY (July to December), marked by the ramp-up of its RF segment, in conjunction with its major US end-customer’s yearly new smartphone line-up.

“We have cut our FY2204F/FY2025F [ending June 30] earnings forecast by -12.1%/-3.9%, upon lowering revenue to reflect actual 1QFY2024F results,” said TA Securities.

Following the earnings downgrade, TA Securities’ target price (TP) for Inari was also lowered to RM3.25 (from RM3.50), based on a price-to-earnings (PE) multiple of 30 times, applied to the estimated earnings per share for the calendar year 2024. This PE multiple aligns closely with the stock’s five-year mean.

Nonetheless, the research house maintains a positive outlook on Inari’s prospects, considering the nascent 5G smartphone upgrade cycle, driven by the increasing demand for RF content within 5G handsets; the ongoing shift towards 5G devices, which is expected to benefit its core RF segment; new product introduction, and customer diversification efforts, facilitated by the China Plus One strategy.

A check on Bloomberg showed that Inari currently has four “buy” and two “hold” calls. Hong Leong Investment Bank Bhd (HLIB) has the highest TP of RM3.88, while the lowest TP of RM3.10 came from Macquarie.

HLIB opined that the group’s 1QFY2024 earnings was within the research house’s expectations. No adjustments were made to its earnings forecast on Inari and its TP remains unchanged at RM3.88.

“We strongly believe that [the] iPhone 5G super cycle will continue, while the optoelectronics division is expected to improve, with more customer diversifications and partnership,” said HLIB.

MIDF Research, meanwhile, said Inari has performed relatively well compared to its peers, despite the semiconductor industry downturn. It maintains its “neutral” recommendation on Inari, with an unchanged TP of RM3.04.

“We also keep our recommendation at this juncture, pending further divulgement on the development of its 54.5%-owned subsidiary Yiwu Semiconductor International Corporation (YSIC). This would also help to reduce the risk of dependency on its major customer for the RF product,” said MIDF.

At the time of writing on Thursday, Inari’s share price slipped 2% or six sen to RM2.94, valuing the group at RM11.01 billion.

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