1QFY22 CNP of RM105.6m (+24% QoQ; +49% YoY) marks a new record which came in within expectations, representing 27% of both our/streets estimates. Revenue hit an all-time high of RM431.1m (+24% YoY) as pre-orders for the latest US smartphone more than doubled YoY. We expect the replacement cycle to continue as 5G becomes more widely available. Also, being included into the MSCI Malaysia index further solidifies Inari’s position as a leader in the tech space. Maintain OUTPERFORM with a Target Price of RM4.80.

Within expectation. Inari registered 1QFY22 CNP of RM105.6m (+24% QoQ; +49% YoY), marking a new record which came in within expectations, representing 27% of both our and streets full-year estimates, respectively.

Results’ highlight. QoQ, Inari registered a new record earnings in 1QFY22 with CNP of RM105.6m (+24% QoQ) that was accompanied with an all-time high revenue of RM431.1m (+19% QoQ) as the group experienced higher loading volume for its radio frequency (RF) filters. More impressively, the group’s effort in optimising its cost has allowed margins to continue expanding. YoY, 1QFY22 CNP leapt 49% on a 24% increase in revenue, fuelled by robust demand for the latest US smartphone that was launched in September. Observing the pre-sale trend of the latest model, China alone saw pre-orders exceeding 5m units (vs. 2m units globally of last year’s model).

Perfect trifecta. We attribute the surge in demand for the latest US smartphone to the cheaper pricing in China where buyers were able to enjoy a discount of between 300 yuan to 800 yuan compared to the corresponding model last year. In other regions, price was kept unchanged but the internal storage capacity was doubled to 128GB coupled with the all-new 120hz Promotion AMOLED display. More importantly, there is a greater preference for the US smartphone due to little competition this time around as Samsung skipped the launch of one the flagship series while Huawei is still plagued by the lack of Google Mobile Services (GMS) support. To top it off, the 3G switch off initiative that is happening around the world serves as a push factor for consumers to upgrade older devices to avoid disruption as 5G roll out takes place. All these factors create a perfect trifecta for Inari’s RF business.

Still hungry for growth. 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 has started to mobilise a portion of its RM1.8b cash pile with the recent MoU with China Fortune-Tech Capital (a VC firm incorporated by SMIC) to offer OSAT related services in China. We have yet to factor in any contributions from these new initiatives

We maintain our FY22E and FY23E CNP forecast, representing growth of 11% and 15%, respectively.

Maintain OUTPERFORM recommendation and Target Price of RM4.80 based on CY22E 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 input costs.

Source: Kenanga Research - 15 Nov 2021