Results

• 1QFY17 revenue of RM282m was translated into a much anticipated core net profit of RM40m, accounting for 23.7% of HLIB full year forecast, but below consensus at 21.2%.

Deviations

• In line.

Dividends

• Declared 1 st single tier dividend of 2.3 sen (1QFY16: 2.3 sen) per share and a special dividend of 0.7 sen (1QFY16: 0.5 sen) per share, which both go ex on 13 Dec.

Highlights

• YoY: revenue grew marginally by 2% as USD strength was sustained. EBITDA grew more meaningfully partly aided by higher FOREX gain coupled with reversal of slow moving inventories. Post adjustment, core net profit declined by 6% due to higher D&A.

• QoQ: Revenue made a stronger comeback with 10% growth thanks to robust product demand. However, core net profit fell by 4% which was potentially attributable to P21 startup costs.

• Referring to recent data from SIA and Gartner, there are positive indicators the global semiconductor sales are improving, mainly driven by inventory replenishment. The launch of new smartphone models and the build for the upcoming year-end holiday season has spurred the market in 2HCY16. Both sources continue to project a YoY decline.

• Inari is cautiously optimistic in maintaining the performance in line with the industry trend focusing on wireless RF and opto electronics businesses. It will continue to work on new manufacturing opportunities to enhance its overall growth.

Forecasts

• Unchanged.

Catalysts

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

• Business diversifications into optoelectronics and T&M.

• Favorable FOREX.

• Continuous effective operational strategy.

Risks

• Major client risk / high dependency.

• FOREX risks.

• Patent disputes.

• Resources / labour shortage.

Rating

HOLD ↔ , TP: RM2.86 ↔

• Largest OSAT in Malaysia specializing in communication and networking segments which are poised to grow further. Pick up in new businesses and successful turnaround in Amertron will be catalysts.

Valuation

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

Source: Hong Leong Investment Bank Research - 23 Nov 2016