Inari’s 1QFY21 core net profit of RM76m (+98% QoQ and +63% YoY) was in line with HLIB’s expectation but beat consensus. The strong performance was mainly driven by the revival of RF business yielding favourable sales mix and improved margin. Proposed first interim single tier dividend of 2.0 sen per share which goes ex on 15 Dec. Inari will continue to expand capacity to meet the robust RF demand over the next few quarters. Reiterate BUY with unchanged TP of RM3.28, pegged to 35x FY22 FD EPS.

In line with HLIB but beat consensus. 1QFY21 core net profit of RM76m (+98% QoQ, +63% YoY) matches our projection at 29% but exceeds consensus full year estimate accounting for 32%. 1QFY21 one-off adjustments include reversal of inventories write down (-RM0.8m) and forex loss (+RM7.1m).

Dividend. Proposed first interim single tier dividend of 2.0 sen per share (1QFY20: 1.3 sen), which goes ex on 15 Dec.

QoQ. Despite the weaker USD (1QFY21: RM4.320USD vs 4QFY20: RM4.32/USD), top line leaped 49% to RM348m due to higher volume loading. This is on the back of seasonal strength and continued demand recovery from semiconductor devices despite the prevailing Covid-19 pandemic. In turn, core net profit surged at a stronger pace and nearly doubled to RM76 thanks to favourable sales mix where contribution from RF was higher, more than sufficient to offset higher tax provision.

YoY. While forex was favourable (1QFY21: RM4.20/USD vs 1QFY20: RM4.16/USD), turnover gained 10% due to higher volume loading of products. Stripping off non-core items, core earnings expanded by 63% attributable to the favourable sales mix and reversal of deferred tax provision.

Outlook. Inari saw good demand in RF business in 1QFY21 and expect a similar demand to continue for the next few quarters spurred by the launch and growth in 5G smartphones where even more RF components are required to handle NR spectra. Barring any sudden deterioration in the global economy, Inari is positive on the earnings for FY21 due to the strong demand in RF. It will continue to (i) improve production capacity to meet the sustained growth in 5G mobile phones over the next few quarters; (ii) improve utilization of existing capacity in optoelectronics and other business units; and (iii) invest in automation to improve revenue and drive better margins. However, Inari also highlight the downside risk of weaker USD and higher gold prices.

Forecast. Unchanged as Results Are in Line.

Reiterate BUY with unchanged TP of RM3.28, pegged to 35x of FY22 FD EPS. We strongly believe that iPhone 12 super cycle is likely to boost Inari back to its glory days while opto division is expected to improve with more customer diversifications and partnerships.

Source: Hong Leong Investment Bank Research - 25 Nov 2020