Inari hit its all-time high quarterly earnings in 1QFY21 with CNP of RM70.7m (+99% QoQ; +48% YoY). The numbers came in within expectations, representing 27% and 30% of our and consensus full-year estimates, respectively. We attribute the strong earnings to the production ramp-up for the US smart phone launched in Oct. First day pre-orders were reportedly at 2.5x of its predecessor with some models still out of stock. We expect the demand for RF to continue owing to the group’s robust order visibility. Maintain OUTPERFORM with an unchanged target price of RM3.14.

Within expectation. Inari Amertron (Inari) recorded its all-time high quarterly earnings in 1QFY21 with CNP of RM70.7m (+99% QoQ; +48% YoY). The numbers came in within expectations, representing 27% and 30% of our and consensus full-year estimates, respectively.

Results’ highlight. QoQ, 1QFY21 CNP jumped 99.4% to RM70.7m on the back of a 49% increase in revenue as the group was ramping up production for the US smart phone launched in October which saw strong demand thanks to the adoption of 5G connectivity. YoY, 1QFY21 CNP climbed 47.5% on a 9.8% increase in revenue. The higher volume for radio frequency (RF) demand was in tandem with the positive feedback on the latest US smartphone. First day pre-orders were reportedly at 2.5x of its predecessor with some models still out of stock.

Momentum is expected to continue. Looking forward, we expect the positive momentum to continue going into the subsequent quarter as Inari is still seeing a good flow of new orders for the next six months. The group is currently running at 80% utilisation rate and is striving to push it further to 95%. In addition, Inari is also adding four more system-in-package (SiP) lines by end-2020. We believe this is just the start of the 5G adoption in smart phones, placing the group’s RF segment in the limelight for a massive upcycle.

Overdue upgrade cycle will drive demand for the latest US smartphone models, making it a go-to-choice for a future-proof upgrade among consumers. Besides that, the new 14th gen OS will bring about long awaited features which may potentially win over market share from the Android user base. Note that the top three active US smart phones in circulation consist of 4-5 years old models which will soon face hardware bottlenecks and end-oflife support for new OS.

We keep our FY21E and FY22E CNP of RM259.7m and RM324.9m, representing growth of 67% and 25%, respectively.

Maintain OUTPERFORM recommendation and Target Price of RM3.14 based on CY21 PER of 35x (representing +2SD above its 3-year mean) considering Inari being the purest proxy to 5G adoption in the US flagship smartphone.

Risks to our call include: (i) less aggressive orders from its key customer, (ii) delay in 5G rollout, and (iii) higher-than-expected input costs.

Source: Kenanga Research - 25 Nov 2020