4QFY21 CNP of RM85.4m (+15% QoQ; +141% YoY) propelled FY21 CNP to RM324.3m (+108% YoY) which came in above expectations, exceeding our/street’s estimates by 8%/4%, respectively. FY21 CNP grew at a larger quantum than revenue (+35% YoY) thanks to solid demand for higher-margin 5G RF components. We expect another strong quarter subsequently as Inari fires on all cylinders for a 2021 US smartphone. Maintain OUTPERFORM with a higher Target Price of RM4.80.

Above expectation. 4QFY21 CNP of RM85.4m (+15% QoQ; +141% YoY) propelled 1FY21 CNP to RM324.3m (+108% YoY) which came in above expectations, exceeding our and streets full-year estimates by 8% and 4%, respectively.

Results’ highlight. QoQ, Despite the 2020 US smartphone nearing the tail-end of its annual flagship status (2QCY21 shipment unit: -20% QoQ; +18% YoY), Inari still managed to log its best ever fourth quarter earnings with a 15% jump in 4QFY21 CNP to RM85.4m on 5.4% growth in revenue to RM361.3m. We believe this was supported by the early ramp- up of the 2021 US smartphone program requested by its key customer in order to ensure that device supply is in time for its annual September launch event. More importantly, CNP grew at a larger quantum thanks to the group’s effort in optimising cost and labour allocation in spite of the on-going lockdown restrictions. YoY, 4QFY21 CNP leapt 141% on a 55% increase in revenue, fuelled by robust consumer demand as many are still looking to replace older devices with a 5G-enabled one. Cumulatively, FY21 CNP soared 108% to RM324.3m while revenue increased 35% to RM1,428.7m.

Shifting into high gear. Moving ahead into 1QFY22, we are eyeing a stronger quarter sequentially as the group fires on all cylinders for the 2021 US smartphone program. In addition to the support for 5G connectivity, we believe that the upcoming US smartphone to be launched this September may see its biggest upgrade yet with a 120Hz high refresh rate always-on OLED display which will be the first in its product line-up. This will introduce a whole new user experience that will immediately capture the attention of buyers at first time hands-on device interaction.

Aiming for greater heights. Having already established its dominance in the RF space, Inari is still hungry for growth as it continues to aggressively work on new product introductions, especially in relation to data centre components. Inari is currently in discussion with three potential MNC customers; with one already secured and another exhibiting high probability of success. Its 10% private placement of new shares to raise RM1b is in motion, to accelerate its growth plan both organically and potential M&A.

We raise FY22E CNP by 5% to RM394m and introduce FY23E CNP of  RM452m, representing growth of 19% and 15%, respectively.

Maintain OUTPERFORM recommendation and higher Target Price of  RM4.80 (previously RM4.60) based on FY22E PER of 40x (+2SD to its 3- year mean), justified by a super technology-cycle driven by 5G.

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

Source: Kenanga Research - 9 Aug 2021