Results

• 1HFY18 revenue of RM749m was translated into a core net profit of RM158m, accounting for 56% and 58% of HLIB and street’s full year forecasts, respectively. We deem this to be in line as we expect 2HFY18 to be softer as demand tapers coupled with weaker US$.

Deviations

• Largely in line.

Dividends

• Declared 2nd interim single tier dividend of 2.5 sen (2QFY17: 1.8 sen) per share, which goes ex on 13 Mar. YTD dividend amounted to 4.8 sen (1HFY17: 4.8 sen) per share.

Highlights

• QoQ: Despite weaker US$, revenue increased marginally (by 1%) mainly driven by higher demand and change in product mix. Excluding some one-off items, core net profit gained 9% to RM82m thanks to improved economies of scale, more than sufficient to offset higher effective tax rate.
• YoY: Although US$ depreciated by 4%, turnover gained 37% attributable to increased demand in tandem with global semiconductor growth. Bottom line more than doubled (131%) as margins expanded.
• YTD: Sales surged 35% due to increased demand, especially RF. In turn, core earnings doubled to RM158m, more than sufficient to offset the higher effective tax rate.
• With its balanced mature and new products portfolios, Inari is cautiously optimistic to deliver positive performance for the remainder of FY18 leveraging on RF and optoelectronics commensurate with the global semiconductor market growth.

Forecasts

• Maintained.

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: RM2.91 ↔

• 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 with unchanged fair value of RM2.91, pegged to unchanged 18x of CY19 FD EPS.

Source: Hong Leong Investment Bank Research - 28 Feb 2018