Inari Armertron’s (INRI) 2QFY21 adjusted net profit jumped 136% year-on-year (y/y) to RM88mil, beating MQ Research’s forecast, with its 2QFY21 results topping expectations on better-than-expected margins. INRI with a target price of RM3.52 is currently under MQ Research’s review, pending the usual post-results brief by management at 10.30am today (25 Feb). Read on for more.

Event

• INRI reported 2QFY21 (ended Dec 2020) adjusted net profit (NP) of RM88mil (+136% year-on-year (y/y), +27% quarter-on-quarter (q/q)), which is marginally ahead of MQ Research’s/consensus expectations. 1HFY21 adjusted NP of RM157mil is 64%/61% MQ Research’s/consensus expectations FY21E forecasts.

Impact

• INRI’s 2QFY21 results topped expectations on better-than-expected margins. INRI would normally deliver ~60% of profits in 1HFY, but is more likely to see a 55:45 split in FY21 due to delayed launch of smartphones in CY20 that is pushing out demand into 3QFY21 (ended March). On this basis, reported revenue was in line with MQ Research’s expectations. The stronger margins also came in spite of higher incentive payouts during the quarter, reflected in higher selling, general and administrative (SG&A) expenses during the quarter (+19.2% q/q).

• Earnings before interest, taxes, depreciation, and amortization (EBITDA) margins improved to 34.4% (1QFY21: 31.4%), substantially higher than the previous peak margins of 29% enjoyed in FY18. This can be attributed to the high capacity utilisation enjoyed in FY21 on peak 5G-related radio frequency (RF) filter loadings.

• Note that INRI’s financial performance was dampened by adverse forex movements (stronger Ringgit vs USD), which trimmed RM11.6m from reported profit (RM7.6m realised). Adding back the forex, NP would have been 69%/65% of MQ Research’s/consensus forecasts.

• INRI declared a second interim dividend of 2.5sen/share (91% payout) bringing 1HFY21 dividend per share to 4.5sen/share (92% payout) vs FY20’s 2.3sen/share payout.

Action and Recommendation

• MQ Research places INRI under review, pending the usual post-results brief by management today (25 Feb).

12-month Target Price Methodology

• INARI MK: RM3.52 based on a price-to-earnings ratio methodology

Source: Macquarie Research - 25 Feb 2021