Record-breaking FY22 core net profit of RM371m (+11% YoY) matched ours but missed consensus expectation. The performance was supported by higher contributions from all business segments with RF continued to be the key growth driver and finance income, more than sufficient to offset the increase in tax rate. Inari remains cautiously positive on FY23 prospects. Reiterate BUY with unchanged TP of RM3.24, pegged to 29x 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 ours but below street. 4QFY22 core net profit of RM73m (-15% QoQ / YoY) lifted FY22’s to all-time high of RM371m (+11% YoY) which came in in line at 99% of HLIB full year forecast, but miss consensus at 94%. FY22 one-off items include forex gain (-RM23m), allowance for slow moving inventories (+RM3m) and PPE disposal gain (-RM86k).

Dividend. Proposed fourth interim single tier DPS with 94% payout ratio or 2.2 sen (4QFY21: 2.5 sen), which goes ex on 8 Sep. FY22 DPS amounted to 10.0 sen vs FY21’s 11.0 sen.

QoQ. Despite the favourable forex (4QFY22: RM4.36/USD vs 3QFY22: RM4.19/USD), turnover eased 7% to RM336m mainly due to lower loading volumes in optoelectronics and generic business segments on the back of raw material supply constraints. In turn, core net profit was lower by 15% to RM73m attributable to lower adjusted EBITDA margin of 32% (3QFY22: 34%) and higher corporate tax rate of 20% (3QFY22: 12%).

YoY. The stronger greenback (vs 4QFY21: RM4.13/USD) was not helpful, revenue slipped 7% for the same reason mentioned above. Although D&A was lower by 31%, core earnings fell 15% attributable to higher effective corporate tax rate of 20% (4QFY21: 5%).

YTD. Partly aided by favourable forex (FY22: RM4.23/USD vs FY21: RM4.13/USD), revenue gained 8% thanks to higher contributions from all business segments with RF continued to be the key growth driver. Stripping off non-core items, core earnings expanded 11% thanks to EBITDA improvement (+2.5ppt) on the back of favourable sales mix as well as higher finance income (+236%), more than sufficient to offset the higher corporate tax rate of 12% (FY21: 6%).

FY22 sales breakdown. By product, RF: 61% (FY21: 60%), opto: 32% (33%) and generic: 7% (7%). By segment, smartphone/mobile devices: 63% (63%), datacom: 13% (13%), auto: 11% (11%), industrial: 7% (7%) and generic: 6% (6%).

Outlook. According to Gartner, the global semiconductor market is expected to grow 7% in 2022 to USD639bn. Although chip shortages are abating, the semiconductor revenue is projected to decline 2.5% to USD623nm in 2023 seeing weakness in end markets. Semiconductor revenue from smartphones is expected to grow at a slower pace of 3.7% in 2022, while semiconductor revenue from the data centre will remain resilient for longer at 22% growth in 2022 due to continued cloud infrastructure investment. Inari remains cautiously positive on FY23 prospects.

Forecast. Unchanged.

Reiterate BUY with unchanged TP of RM3.24 based on PE multiple of 29x of 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.

Source: Hong Leong Investment Bank Research - 22 Aug 2022