Results

• 9MFY16 sales of RM786m was translated into a disappointing core net profit of RM112m, accounting for 61% and 69% of HLIB and street’s full year forecast, respectively.

• One off adjustments:
• 

Deviations

• Weaker-than-expected sales.

Dividends

• Declared 3rd single tier dividend of 1.0 sen (3QFY15: 2.1 sen) per share, which will go ex on 8 Jun. YTD amounted to 6.2 sen (9MFY15: 6.6 sen) per share, payout ratio of 49% higher than its 40% policy.

Highlights

• The sharp performance reversal was mainly due to scaled back orders by its major customer and inventory adjustment in view of the dismal global smartphone market.

• Citing Gartner’s latest report, global semiconductor market is expected to decline 0.6% yoy in 2016 due to weakened demand for key electronic equipment, elevated inventory levels and the stronger USD.

• Global mobile device sales are estimated to reach 2.4bn units in 2016, a negligible growth of 0.6% yoy but sales value is projected to decline 1.6% yoy.

• Inari’s investments in new projects and partnerships will start to contribute positively beginning in FY17.

• Analyst briefing will be hosted this morning which we expect to grasp better understanding of the company outlook.

Forecasts

• Under review with downward bias pending analyst briefing.

Catalysts

• Wireless communications / mobility / IoT (M2M) / LTE.

• Business diversifications into optoelectronics and T&M.

• Favorable FOREX.

• Continuous effective operational strategy.

Risks

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

Rating

HOLD , TP: Under Review

Positives

• Appreciation of greenback, 40% dividend payout providing reasonable yield and strong earnings growth.

Negatives

• Innovation stalemate in telecommunication.

Valuation

• Our HOLD call and TP of RM3.57 are both under review with downward bias subject to analyst briefing outcome. Current TP is pegged to unchanged 15x of CY16 EPS.

Source: Hong Leong Investment Bank Research - 19 May 2016