Record-breaking 2QFY21 lifted 1HFY22 core net profit to RM211m (+20% YoY) matching our and consensus expectations. The outstanding performance was driven by higher RF volume loading coupled with higher finance income . Inari remains positive on its near term prospects and believes the momentum heading into 2022 will continue to be resilient in line with industry forecasts. Reiterate BUY with unchanged TP of RM4.48, pegged to 40x FY23 EPS. We strongly believe that iPhone 5G super cycle will continue while opto division is expected to improve with more customer diversifications and partnerships.

Matched expectations. All-time high 2QFY22 core net profit of RM108m (+4% QoQ, +8% YoY) lifted 1HFY22’s to RM211m (+20% YoY) which came in line, accounting for 56% and 53% of our and consensus full year forecasts, respectively. Historically, 2H is a softer half. 1HFY22 one-off items include forex gain (-RM3.3m), write down of inventories to net realisable value (+RM335k) and PPE disposal loss (+RM59k).

Dividend. Proposed second interim single tier DPS with 96% payout ratio or 2.8 sen (2QFY21: 2.5 sen), which goes ex on 17 Mar. 1HFY22 DPS amounted to 5.6 sen vs 1HFY21’s 4.5 sen.

QoQ. While the greenback was relatively flat at RM4.19/USD, turnover eased 3% to RM420m attributable to lower loading volume in opto segment. However, core net profit was higher by 4% to RM108m thanks to favourable sales mix and higher finance income (+39%) despite higher D&A (+5%).

YoY. Partly aided by favourable forex (vs 2QFY21: RM4.11/USD), revenue gained 12% thanks to higher contributions from all business segments with RF business segment continued to be the key driver. Stripping off non-core items, core earnings expanded 8% thanks to EBITDA improvement (+1.3ppt) on the back of favourable sales mix as well as higher finance income (+470%).

YTD. For the same reasons mentioned above, top and bottom lines expanded by 18% and 20%, respectively.

1HFY22 sales breakdown. By product, RF: 62% (1HFY21: 62%), opto: 31% (31%) and generic: 7% (7%). By segment, smartphone/mobile devices: 65% (66%), datacom: 12% (12%), auto: 11% (10%), industrial: 7% (7%) and generic: 5% (5%).

Outlook. According to WSTS, the global semiconductor market is expected to grow 25.6% in 2021 and 8.8% in 2022, which corresponds to a market size of USD601bn for 2022. The growth is mainly driven by double digit growths of sensors and logic products, while all other products include analog, memory and opto are also expected to expand. IDC revised its smartphone shipment forecast to a lower growth rate of 3% due to continued component shortages and logistical challenges. The transition to 5G phones will continue in 2022 albeit at a lower ASP. Barring any resurgence of new Covid-19 variants beyond Omicron, Inari remains positive on its near term prospects and believes the momentum heading into 2022 will continue to be resilient in line with industry forecasts thanks to good demand from global transition towards 5G, the digitalization of businesses and ongoing tight supply in the semiconductor market.

Forecast. Unchanged.

Reiterate BUY with unchanged TP of RM4.48, pegged to 40x of FY23 EPS (previously CY22 EPS) as we roll forward our valuation horizon. 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 - 21 Feb 2022