Inari Amertron (INRI) reported its 3Q21 adjusted net profit of RM83mil, up 140% year-on-year (y/y) but down by 6% from the previous quarter. This is in line with Macquarie Equities Research’s (MQ Research) and analysts’ forecast as the third quarter earnings are usually seasonally weaker. INRI’s total dividend of RM4.0sen/share with an entitlement date of 9 June was also a surprise to MQ Research; INRI’s Outperform rating is maintained.

Event

• INRI reported 3QFY21 (ended March) adjusted net profit (Adj Np) RM83mil (+140% y/y, -6% q/q), which was in-line/ahead of MQ Research’s/street expectations. 9MFY21 Adj Np of RM240mil was 80%/83% of MQ Research’s/street FY21E forecasts. INRI also declared a special dividend of RM1.8sen/share on top of an interim dividend of 2.2 sen/share, which was a modest surprise to MQ Research’s expectations, given INRI has recently announced a potential RM1bil private placement.

• Note that 3Q earnings are usually seasonally weaker. But due to the delayed product cycle by a major smartphone customer in 2020, there were substantial spillover volumes in 3QFY21. MQ Research expects the seasonal off-peak volumes to be more pronounced in 4QFY21, with only a slight pull-in of the CY21 product cycle volumes into the quarter.

Impact

• The radio frequency (RF) segment continued to underpin INRI’s strong 3QFY21 results, with RF revenues +93% y/y by MQ Research’s estimates to ~RM210mil. The Optoelectronics segment also improved sequentially, as MQ Research expected, with revenues rising +16.5% q/q. While it is still weaker y/y (-3%), this is a marked improvement from 2QFY21, which was disrupted by raw material shortages. Lastly, the generic segment saw a +27% q/q jump in revenues to an estimated RM24mil, as automotive end-demand remains robust and raw material shortages eased. Overall utilisation appears to have dipped to ~70% in 3QFY21.

Action and Recommendation

• MQ Research maintains its Outperform on INRI. Note management’s detailed post-results briefing today (Monday, 24 May). MQ Research expects a sanguine outlook for 4QFY21, as well as bullish outlook for FY22 from management, underpinned by continued momentum in the RF segment from increasing 5G penetration in smartphones, as well as incremental revenue contribution from new customer segments

12-month Target Price Methodology

• INARI MK: RM3.80 based on a PER ratio methodology

Source: Macquarie Research - 24 May 2021