Results

• FY16 sales of RM1.0bn was translated into a surprising core net profit of RM153.4m, accounting for 117%% of HLIB full year forecast, but in line with street’s at 102.3%.

Deviations

• Higher contribution from high-margin RF products.

Dividends

• Declared 4th single tier dividend of 2.2 sen (4QFY15: 2.3 sen) per share, which will go ex on 13 Sept. YTD amounted to 8.4 sen (FY15: 8.9 sen) per share. Also, exceed our expectations.

Highlights

• YoY: While the flattish 4QFY16 top line was partly aided by stronger greenback, EBITDA improvement of 13.9% may also due to better sales mix skewed towards higher margin RF.

• QoQ: Revenue made a strong comeback with +17.3% thanks to robust volume loading in RF and fiber chip. Eventually, this has led to 44% growth in 4QFY16’s core net profit.

• Citing WSTS’ latest report, global semiconductor market is expected to decline 2.4% yoy in 2016 before returning to 2% annual growth in both 2017 and 2018.

• Also, Gartner predicts that global smartphone sales will no longer growing at double digit growth rate, with only 7% yoy in 2016 to reach 1.5bn units.

• Inari guided that its performance will be more or less in line with the industry figures above amidst favorable forex.

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

Forecasts

• Unchanged pending analyst briefing today.

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: RM2.86

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

• Negatives – Innovation stalemate in telecommunication.

Valuation

Reiterate HOLD call with unchanged TP of RM2.86, pegged to 15x of CY17 FD EPS.

Source: Hong Leong Investment Bank Research - 25 Aug 2016