Inari Amertron (INARI) announced an all-time high quarterly revenue and profit last Friday, with its 1Q22 revenue and net profit surging 24.0% year-on-year (y/y) and 52.6% y/y, respectively, which was mainly derived from higher revenue growth led by the radio frequency business. Macquarie Equities Research (MQ Research) said this was in-line with its expectations and believes that the company will continue showing strong volume momentum into the next quarter.

MQ Research maintains Outperform recommendation on INARI, which is also one of its preferred names in the tech sector. Read on for an excerpt of this report dated 12 November 2021.

Strong Seasonal Peak

• INARI reported 1Q22 (ended Sept) adjusted net profit of RM108m (+56% y/y, +22% q/q), which was in-line with MQ Research’s/consensus expectations; 29%/28% of respective FY22E forecasts. 1HFY represents the peak seasonal revenue for INARI, which historically averages ~60% of earnings in the period.

• INARI declared a first interim dividend of 2.8sen/share, (93% payout ratio) which is ahead of MQ Research’s expectations.

Smartphone cycle drives radio frequency (RF) segment

• RF segment (61% of revenue) booked a 38% y/y (+36%q/q) increase in revenue. Note that 1QFY21 was a relatively low base as the seasonal peak earnings were delayed into 2QFY21/3QFY21. Note, this is in spite of MQ Research’s assumption of Apple trimming iPhone production by 5m (from 90m to 85m) in 1HFY22. MQ Research anticipates the broader supply chain bottlenecks have driven INARI’s RF customers to maintain relatively high loadings to mitigate any supply disruptions.

• Opto segment (32% of revenue) booked a 4% y/y and +2% q/q increase in revenue. Meanwhile the generic segment saw 24% y/y growth (from a low base; 1QFY21 suffered covid-disruptions).

Action and Recommendation

• MQ Research maintains its Outperform recommendation on INARI. MQ Research expects the strong volume momentum to persist into 2QFY22; i.e. MQ Research believes it will be unlikely for INARI to disappoint in the short term. MQ Research continues to recommend remaining well-weighted in tech/exporters/thematics, and INARI is one of MQ Research’s preferred names in the sector.

• Management will be hosting the usual post-results call on Monday (15th Nov at 10.30am), where more detailed updates will be provided.

12-month Target Price Methodology

• INRI MK: RM4.35 based on a total shareholder return methodology

Source: Macquarie Research - 15 Nov 2021