Results

• FY17 revenue of RM1.2bn was translated into a higher-than expected core net profit of RM184.3m, accounting for 107.1% of HLIB full year forecast, but in line with consensus at 95.8%.

Deviations

• Better-than-expected margin attributable to improved economies of scale.

Dividends

• Declared 4 th interim single tier and a special dividend of 2.3 and 0.5 sen per share respectively, which goes ex on 18 Sep. FY17 dividend amounted to 8.3 (FY16: 3.7) sen per share also above our forecast (based on enlarged share capital).

Highlights

• QoQ: Besides stronger US$, revenue surged 26% due to higher demand of existing and new products in tandem with global semiconductor growth. Excluding some one-off items including FOREX and disposal gain, core net profit grew slower at 5.7% to RM56.1m.

• YoY: Both top and bottom lines improved 36% thanks to increased demand and stronger US$.

• YTD: Revenue rose 13% along with core earnings which expanded by 20% attributable to higher volume loading and stronger US$.

• Disposed PCL shares for a gain of RM20.4m after failing to form the JVE with a configuration according to the MOU.

• Inari is cautiously optimistic in maintaining the performance in line with the industry trend focusing on wireless RF and opto electronics operations including the newly invested iris scanning project.

Forecasts

• Forecasts are rolled over to FY18 along with margin revisions. In turn, FY18-19 EPS are raised by 5.6% and 6.8%, respectively.

Catalysts

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

• Business diversifications into optoelectronics.

• Continuous effective operational strategy.

Risks

• Major client risk / high dependency.

• FOREX risks.

• Patent disputes.

Rating

• HOLD ↔ , TP: RM2.12

• 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 after raising TP by 25% from RM1.70 to RM2.12 , pegged to 18x (previously 15x) of CY18 FD EPS in view of the strong growth ahead.

Source: Hong Leong Investment Bank Research - 23 Aug 2017