Highlights

Graduated from Ace and slated to make trading debut in Main Market of Bursa Malaysia today. This qualifies itself to a wider spectrum of investors and we believe that this will lead to stronger interest on the stock.

We are optimistic on its market outlook and continue to like this stock. Its existing radio frequency (RF) business remains robust underpinned by global proliferation of smart devices. While, its fibre optics division, namely ISK, is poised for maiden contribution in 4QFY14, solidifying top line growth going forward.

RF: new plant 5 is running at near full capacity although it was expanded in Oct 2013. It is now evaluating several alternatives for the next phase of expansion.

Optoelectronics (Amertron): experiencing strong demand from existing customers while profit margins improved from 4% to 7% thanks to enhanced production efficiency due to successful integration and optimization.

Electric Test and Measurement Equipment: commenced delivery of 5 new products to Agilent since Jan 2014. There are over 15 new products in the pipeline at final development stage to be introduced progressively to Agilent.

Fibre Optics: to be complementary to Avago’s recent acquisition of LSI Corporation who is a leader in enterprise storage market as fibre optics is the essential communication solution in server farm.

Envisions moving up the value chain transforming from an EMS (Electronics manufacturing services) to ODM (original design manufacturer) provider for more range of products in 2015. This would allow Inari Amertron to build a stronger branding and in turn, enhance profitability.

Forecasts

Unchanged.

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 providing reasonable yield and listing transfer to Bursa Main Board.

Negatives – innovation stalemate in telecommunication.

Valuation

Reiterate BUY with unchanged fair value of RM3.09 based on unchanged 15.1x CY15 P/E.

Source:Hong Leong Investment Bank Research - 3 Jun 2014