INVESTMENT HIGHLIGHTS

• 1QFY17 normalised earnings came in within ours and consensus’ expectations

• Inari’s 1QFY17 cash level improved remarkably by +36.6%yoy to RM286.9m

• Higher dividend declared of 3sen per share for 1QFY17

• Maintain BUY with a higher target price of RM4.32 per share

Within estimates. Inari Amertron Berhad (Inari) reported 1QFY17 earnings of RM48.0m, an increase of +5.5%yoy. After excluding unrealised forex gain of RM3.5m, the normalised earnings amounted to RM44.5m. This came in within ours and consensus’ expectations, accounting for 24.2% and 23.9% of FY17 full year earnings estimates respectively.

Healthy net cash level. As at 1QFY17, the group’s cash level improved remarkably by +36.6%yoy to RM286.9m. In comparison, 1QFY17 total borrowing stands at RM52.3m. This has resulted in a healthy net cash level of RM234.6m.

Higher dividend. Inari declared 1QFY17 dividend of 3sen per share as compared to 2.8sen per share announced in 1QFY16. We are of the view that the higher dividend announced was supported by its growing cash pile. In addition, the payout ratio recorded in 1QFY17 is 59.9% compared with 1QFY16’s payout ratio of 56.6%.

Earnings. We maintain our earnings estimates at this juncture pending further details from the management during the analyst briefing.

Target Price. We roll forward our valuation base year to FY18 and derive a higher target price of RM4.32 per share. This is premised on FY18 EPS of 20.4sen pegged to unchanged FY18 forward PER of 21.2x. Our target PER is based on its 5-year historical high rolling PER (i.e. since its listing in 2011).

Maintain BUY. Inari’s strategic positioning within the semiconductor value chain has proven to be in favour of the group. The group’s various core business segments have been recording better financial performance. Coupled with financial advantages from MIDA, the group has healthy net cashflow which would be use for business expansion and for rewarding existing shareholders. All factors considered, we maintain our BUY recommendation on the stock.

Source: MIDF Research - 23 Nov 2016