Highlights

Share price continued to gain bullishly accompanied by financial results which consistently exceed expectations thanks to effective management executions coupled with favorable semiconductor outlook. We continue to like this firm and believe that there is more room to grow.

RF business is poised to propel further due to:

1. Positive semiconductor outlook (~5-10% growth).

2. Smart communication devices remains as the main application growth driver for the overall industry.

3. Higher demand for Avago’s RF ICs.

4. Asset-light adoption by global players.

Although Amertron’s products are relatively more mature relative to RF ICs, OIDA believes that this segment’s steady growth will be supported on the back of strong demand creating a potential market size of ~USD1.2tr by 2017.

Acquisition of Amertron is synergistic and complementary, as proven by past two quarters’ results where Inari’s top and bottom line saw major improvements. Besides, this also allows Inari to have access to expertise in fibre optics which is crucial for its ISK’s development.

By leveraging on Agilent well-established T&M market and its role as electronics and electrical industry lead partner for ETP, CEEDTec is expected to grow rapidly with exposure to international market.

ISK’s contributions is expected to rise thanks to:

1. Insatiable demand for data as user usage behavior migrates from voice coupled with introduction of more online services.

2. Copper transition to fibre as the latter offers high bandwidth allowing huge data to be carried more efficiently.

Catalysts

• Wireless communications / mobility / IoT (M2M) / LTE
• Business diversifications into optoelectronics and T&M
• Favorable FOREX
• Continuous effective operational strategy.

Risks

• Single major client risk (Avago) / high dependency
• FOREX risks
• Patent disputes
• Resources / labour shortage.

Rating

BUY, TP: RM3.09

Positives - Synergy from acquisition, 40% dividend payout at reasonable yield, listing transfer to Bursa Main Board.

Negatives – innovation stalemate in telecommunication.

Valuation

We value the stock with a fair value of RM3.09 based on 15.1x CY15 P/E multiple, average P/E multiple of its Malaysian and US-based peers (see Figure #13).

Source: Hong Leong Investment Bank Research - 2 Apr 2014