Results

• 1QFY18 revenue of RM373m was translated into a higher than-expected core net profit of RM75m, accounting for 33% and 29% of HLIB and street’s full year forecasts, respectively.

Deviations

• Stronger-than-expected RF revenue, which in turn leads to higher margin thanks improved economies-of-scale.

Dividends

• Declared 1 st interim single tier dividend of 2.3 sen per share, which goes ex on 13 Dec (1QFY17 interim and special dividend totaled 1.5 sen per share post-bonus issue).

Highlights

• QoQ: Despite weaker US$, revenue surged 8% mainly driven by RF. Excluding some one-off items, core net profit grew strongly by 34% to RM75m thanks to improved economies of scale.

• YoY: Besides stronger US$, top line gained 33% attributable to increased demand of existing and new products in tandem with global semiconductor growth. Bottom line almost doubled (90%) as margins expanded.

• Revenue breakdown for 1QFY17: RF 50%, optoelectronics 35% and others (legacy and CEEDTec) 15%.

• Number of RF testers reached 960 at the end of 1QFY18 and aim to expand to 1k testers by end of 1HFY18.

• With its balanced mature and new products portfolios, Inari is optimistic to sustain growth going forward leveraging on RF and optoelectronics commensurate with the global semiconductor market growth.

Forecasts

• Tweak parameters based on the deviations above. In turn, FY18-20 EPS are raised by 25%, 24% and 20%, 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: RM2.62

• 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 although TP is raised by 24% from RM2.12 to RM2.62 , pegged to unchanged 18x of CY18 FD EPS.

Source: Hong Leong Investment Bank Research - 22 Nov 2017