INVESTMENT HIGHLIGHTS

• 3QFY17 normalised earnings grew more than twofold

• Higher dividend announced due to stronger cash generation capability

• Commendable share price appreciation on a year-to-date basis limits potential upside in the near term

• Nonetheless, dividend yield expected to remains attractive

• Downgrade to HOLD with an unchanged target price of RM2.23 per share

Strong 3QFY17 performance. Inari Amertron Bhd (Inari) 3QFY17 normalised earnings surged by +114.9%yoy to RM61.4m. This is after adjusting for gain on disposal of quoted investment (RM4.1m) and loss on foreign exchange translation (-RM6.1m). The increase in normalised earnings was mainly attributable to strong demand of its product which has boosted its 3QFY17 revenue by +26.1%yoy to RM274.0m. This is further amplified by healthier profit margin due to changes in product mix.

Within expectation. On a cumulative basis, Inari’s 9MFY17 normalised earnings increased by +9.3%yoy to RM133.8m. This came in within our expectation, accounting for 72.7% of FY17 full year earnings estimates.

Dividend. Inari announced 3QFY17 dividend of 2.2sen per share as compared to 1sen per share announced in 3QFY16. On a cumulative basis, the group has declared dividend of 7sen per share. This was mainly supported by the group’s stronger cash generation capability.

Impact on earnings. No change to our earnings estimates at this juncture.

Target Price. We are maintaining our target price of RM2.23 per share. This is premised on FY18 EPS of 10.5sen pegged to unchanged FY18 forward PER of 21.2x. Our target PER is based on its five year historical high rolling PER.

Downgrade to NEUTRAL. 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 due to healthier demand of its product. Coupled with financial advantages from MIDA, the group has healthy net cashflow which would be use for business expansion and for rewarding existing shareholders

Source: MIDF Research - 17 May 2017