Technology and IT-related division is the anchor earnings contributor. INSAS core activity is investment in high growth technology companies in three broad technology sectors namely electronics manufacturing services (EMS), financial transaction processing (“Fintech’) and bio-technology. The major investee companies in the respective tech sectors are INARI, Numoni Pte. Ltd. (“Numoni’) and Sengenics Corporation Pte. Ltd (“Sengenics”).

INARI is involved in the Outsourced Semiconductor Assembly and Test (“OSAT”) industry for radio frequency (RF) products and tailored EMS contract manufacturing to the semiconductor optoelectronic industry. According to earnings consensus, INARI is expected to report earnings CAGR of 23% for FY19-21 on the back of a 20% hike on revenue, driven by an expected surged in related RF components demand to support the growing need for frequency bands and smartphone sales volume in next 5G generation smartphones sales. Apart from RF, the group expects improving sales from the optoelectronics division, driven by resilient demand for fibre optics transceivers and higher sales volume for sensors.

Numoni was originally formed to bring financial inclusion to the under-banked with its Cash-in Cash-out solutions, coinciding with rapid changes in the financial payment industry with the onset of mobile enabled financial technology (“Fintech”) during the last few years. Numoni’s subsidiary in Malaysia, Numoni DFS Sdn Bhd is licensed by Bank Negara Malaysia to conduct e-wallet and remittance businesses.

Sengenics is a functional proteomics company that was originally spun out from research that was originally carried out at Cambridge University in the UK. The company has a patented technology called KREX and has made good progress engaging world renowned customers and collaborators that include top pharma, biotech companies and ivy league-class academic institutions in the USA, Europe and Asia as it expands its footprint in the biomarker industry.

Riding on INARI’s success (contributed average 50% to INSAS FY18-19 earnings). INSAS main asset is its 19% stake or RM1.23bn in INARI, which already exceeded INSAS market cap of RM586m, implying that the market is valuing its other divisions such as Financial service and credit & leasing division; Property investment and development division; Investment holding and trading division; Retail trading and car rental division businesses for free. Meanwhile, INSAS is also holding a 12% stake in HOHUP (RM23m market cap), 10% stake in OMESTI (RM20m market cap), 25% in DGSB (RM18m market cap) and 8% in SYF (RM10m market cap).

INSAS is a cheaper entry into INARI as it is the parent company, holding an effective stake of 19%. Despite being an associate company, INARI contributed approximately 50% of INSAS FY18-19 PBT while the rest are coming from its financial services and credit & leasing, property investment and development, retail trading and car rental as well as investment holding and trading segments. Based on INARI’s current price level, INSAS RNAV is worth at least RM4.12, trading at a steep 79% discount (refer to Figure 5). Even after applying a 30% discount for its liquidity, there is still a 241% upside to INSAS revised value of RM2.88.

Bullish signs ahead after staging triangle breakouts on the daily and weekly charts. After building base above the support trendline from a low of RM0.695 (23 May), INSAS finally staged a long awaited triangle breakouts on its daily and weekly charts this week. The two triangle breakouts could potentially kick start a new upswing soon, supported by positive technical indicators and trending above the multiple key SMAs. Taking out the immediate resistance at RM0.87 (24 July high) would spur prices higher towards RM0.90 (52-week high) next before reaching our LT objective at RM1.00 psychological barrier. Supports are pegged at RM0.815 (200W SMA) and RM0.80 (20W SMA). Cut loss at RM0.78.

Source: Hong Leong Investment Bank Research - 24 Oct 2019