Inari’s 9MFY18 core net profit of RM225m (-20% QoQ; +28% YoY) is in line. Declared third dividend of 1.6 sen per share. Top line declined QoQ attributable to seasonal weakness as well as USD depreciation. On the contrary, turnover was stronger YoY despite unfavourable FOREX thanks to higher demand. Inari has a cautiously optimistic outlook. Maintain our projections, HOLD rating and TP of RM1.91.

Within expectations: 9MFY18 revenue of RM1.1bn was translated into a core net profit of RM225.4m, accounting for 80% and 82% of HLIB and consensus full year forecasts, respectively. This is deemed in line with expectation of softer 4QFY18.

Dividend: Third single tier interim dividend of 1.6 (3Q17: 1.4) sen per share, representing 89% payout. This will go ex on 6 Jun.

QoQ: Top line was lower by 13% to RM326m due to lower loading compounded by USD depreciation. In turn, core net profit fell 20%.

YoY: Despite the stronger RM, turnover strengthened 19% thanks to increase in demand and changes in product mix. This was translated into 28% increase in core net profit to RM68m thanks to better economies of scale.

9MFY18: Revenue and core earnings expanded by 29% and 76%, respectively for the same reasons above.

Outlook: Management is cautiously optimistic, highlighting: 1. Continuous global growth especially in emerging Asia and Europe. However, global growth is projected to soften beyond next couple of years; 2. While 3QFY18 results were not affected by weakened global smartphone sales, 4QFY18 may experience softer RF orders. 3. The recent US’ ban against ZTE also affected its optoelectronics business in 4QFY18. 4. Recent improved sentiments have led to late pick up in orders. 5. No major political impact besides the potential changes in minimum wage policies. Inari will continue to focus on managing costs to improve margins. At the same time, it will work on new manufacturing projects while looking out for investment opportunities to enhance its overall growth.

Forecast: Maintain. Reiterate HOLD with unchanged fair value of RM1.91, pegged to unchanged 18x of CY19 FD EPS. 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.

Source: Hong Leong Investment Bank Research - 23 May 2018