Inari entered into a non-binding MOU with CFTC with the intention to set up a JV in China to carry out OSAT manufacturing and related businesses primarily for the China market. We view this development positively as (i) the JV will reinvigorate ATK; (ii) the China semiconductor market will be vibrant supported by huge investment; and (iii) local partnership will lower the risk of doing business. Reiterate BUY with unchanged TP of RM4.28, pegged to 40x CY22 FD EPS.

NEWSBREAK

MOU. Inari entered into a non-binding MOU with China Fortune-Tech Capital (CFTC) with the intention to set up a JV in China to carry out OSAT manufacturing and related businesses primarily for the China market. The JV shall focus exclusively on the China market and can only provide OSAT services within China.

CFTC. It is a private PE fund management company founded in Feb 2014 in Shanghai, China. CFTC’s investments focus on IC industry including semiconductor and electronic materials, IC design, equipment, IP, services and tools. Its investment philosophy emphases on professional, international and industrial chain-focusing.

Capital contribution. Inari will contribute 100% of the equity shares of Amertron Technology Kunshan (ATK) and new cash investment of RMB463m (RM302m) to the JV. While, CFTC will contribute new cash investment of RMB749m and RMB21m as 100% of its equity shares of Yiwu Semiconductor International Corporation. Upon completion of the capital contribution, Inari will own 55% equity of the JV and the remaining by CFTC.

Responsibilities. Inari to provide expertise and operational leadership to expand ATK and new China plants. Inari will also provide relevant and continuing technical assistance, knowledge and know-hows relating to OSAT. CFTC to provide expertise, relationships and guidance to the JV on business opportunities, including sales, marketing strategy, business development and risks within the regulatory frameworks. CFTC will also provide local leadership on the physical set up of plants, safety / health / environmental compliance and secure HR for operations of these plants.

Rationale. The MOU will bring together the strengths of both parties and leveraging on each other’s expertise through knowledge transfer from Inari to the JV while Inari will draw from CFTC’s local leadership and guidance in the operation of the JV and its plants. The MOU represents an opportunity and commitment to foster a business relationship with CFTC with a view to collaborate and expand the OSAT business of Inari and ATK under the JV in China and thus enable Inari to expand its operations in China and to increase its revenue and earnings stream.

HLIB’s VIEW

We view this development positively as (i) the JV will reinvigorate ATK; (ii) the China semiconductor market will be vibrant supported by over USD150bn investment from the government from 2014 through 2030; and (iii) CFTC is a strong partner which in turn will lower the risk of doing business in China.

Forecast. Unchanged.

Reiterate BUY with unchanged TP of RM4.28, pegged to 40x of CY22 EPS. We strongly believe that iPhone 5G super cycle will continue while opto division is expected to improve with more customer diversifications and partnerships.

Source: Hong Leong Investment Bank Research - 20 Oct 2021