We see the transition to 5G as a key catalyst to Inari’s earnings over the near term. Driven by an increase in the number of frequency bands and the Sub 6 wavelength, there will be a need for its customer’s unique RF filter. Inari has been preparing itself for this growth, building its test capacity and more recently doubling its SiP assembly line.
The recent collaboration with PCL also opens the door to the fast growing optical module market. Industry growth is expected to be underpinned not merely by datacentre growth but also 5G base stations. Switch port migration from 40G to 100G will be an additional demand driver. We expect maiden earnings contribution at the associate level in FY21E.
Separately, we are positive on several other developments which will help fill its 680k sf plant P34. Swiss-based Comet Group’s production line was set up recently, allowing Inari to move into module testing for a front-end semi manufacturer.
The target price is raised to RM3.07 based on a higher target PE of 35x (to reflect a likely strong 3-year forward earnings CAGR of 22%, largely underpinned by the 5G cycle; previously 26x) on the CY21E EPS. After 2 years of earnings contraction, we see upside risk to earnings as 5G penetration proliferates. Maintain BUY.
Source: Affin Hwang Research - 30 Jul 2020
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INARICreated by kltrader | Jan 03, 2023
Created by kltrader | Sep 30, 2022