• Strong 4QFY17 results lifted FY17 normalised earnings by +27.1%yoy to RM185.3m

• Higher dividend announced due to stronger cash generation capability

• Share price trading above five year historical high rolling PER of more than 21x limits potential upside

• Maintain HOLD with an unchanged target price of RM2.29

Strong 4QFY17 performance. Inari Amertron Bhd (Inari) reported 4QFY17 earnings of RM65.6m. After excluding exceptional items, the 4QFY17 normalised earnings came in at RM55.8m (+65.9%yoy). The bulk of the exceptional items pertained to gain disposal of quoted investment (PCL Technologies Inc) amounting to RM16.4m. The increase in normalised earnings was mainly attributed to strong demand of its product which has boosted its 4QFY17 revenue by +34.4%yoy to RM345.7m. This is further inflated by healthier profit margin due to changes in product mix. Note that for the quarter-inreview, the profit margin came in higher at 16.1% from 13.1% a year ago.

Earnings meet expectation. Inari’s full year FY17 normalised earnings expanded by +27.1%yoy to RM185.3m (vs FY16: RM145.8m). This came in within ours but below consensus expectations, accounting for 99.4% and 92.8% of FY17 full year earnings estimates.

Dividend. Inari announced 4QFY17 dividend of 2.8sen per share as compared to 2.2sen per share announced in 4QFY16. On a cumulative basis, the group has declared dividend of 9.8sen per share for FY17 (FY16: 8.4sen). This was mainly supported by the group’s stronger cash generation capability. Note that group’s cash reserve grew by more than one fold to RM455.3m as at 4QFY17 (4QFY16: RM210.0m). This could lead to a more generous dividend payment in the future.

Impact on earnings. We are maintaining our earnings estimates at this juncture.

Target Price. We are maintaining our target price of RM2.29 per share. This is premised on FY18 EPS of 10.8sen pegged to unchanged FY18 forward PER of 21.2x. Our target PER is based on its five year historical high rolling PER (i.e. since its listing in 2011).

Maintain 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 (i.e. wireless RF, optoelectronics and iris scan product) 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. However, we view that the positivity has been priced into the share price. At this juncture, the stock is trading at above its five year historical high rolling PER of more than 21x. All factors considered, we are maintaining our

NEUTRAL recommendation on the stock.

Source: MIDF Research - 23 Aug 2017