INARI’s FY22 results met expectations. FY22 revenue climbed 8.3% as stronger contributions from the RF segment offset the slowdown in the optoelectronic and generic business segments, while CNP grew at a quicker pace on improved efficiencies. We continue to like INARI for its dominant position in the RF space as it ramps up for the new US smartphone launch. We fine tune our FY23F CNP by -4.6% and introduce FY24F numbers. Maintain OUTPERFORM and TP of RM3.45.

Within expectations. FY22 CNP of RM388.5m (+19.8% YoY) met our forecast and the consensus estimates.

Results’ highlights. YoY, FY22 revenue climbed 8.3% despite some slowdown in the optoelectronic and generic business segments due to supply chain constraints. However, CNP grew at a quicker pace of 19.8% on improved margins as the group benefited from the transitioning of smartphone RF chips from 4G to 5G connectivity as well as ongoing efforts to streamline its operations and practice prudent cost control, further cementing its position as the highest margin earner in the local OSAT space.

Looking forward to a new launch. Putting the seasonal low cycle behind, we look forward to the highly anticipated annual launch of the new US smartphone in September. We learnt that the customer is requesting more RF testers to be added which further reinforces our optimism for the company. We believe this added capacity could be purposed for a potentially earlier release in September instead of its typical mid-Sep schedule as a cautionary measure to avoid any component supply disruption. In addition, channel checks also suggest that the US smartphone maker may increase its selling prices (while maintaining the production volumes YoY) to factor in the higher cost of production which could shield its supply chain vendors like INARI from the risk of margin compression.

We fine tune our FY23F CNP by -4.6% to RM407.5m on housekeeping reasons and introduce FY24F CNP of RM447.4m

Maintain OUTPERFORM and Target Price of RM3.45 based on 28.5x CY23E PER, representing a slight premium to peers’ forward average of 26x, justified by INARI being: (i) the closest proxy to 5G adoption, (ii) able to sustain strong margins while (iii) expanding its revenue stream with new businesses. Our target price also imputes a +5% adjustment based on its ESG rating of 4-star as appraised by us (see Page 4).

Risks to our call include: (i) unfavourable response to new offerings by its key customer; (ii) earnings risk stemming from high customer concentration; (iii) delays in the 5G roll-out, and (iv) higher input costs.

Source: Kenanga Research - 22 Aug 2022