First off, we called for a take profit on INARI and we still maintained that view due to reasons regarding the iPhone X.

Not Recommending a Buy Just Yet

1. Apple cutting the iPhone X numbers are an indication that we would likely see a lower revenue for Broadcom toward Apple. INARI is linked closely to the production of smartphone telecommunication chips for Apple devices and we felt that this would affect the revenue soon.
2. The $1000 iPhone is a little bit heavy to most users and we think that growth numbers shouldn’t be able to surprise for 2018.
3. If you don’t see Broadcom shares declining due to Apple production cuts, we can tell you that Broadcom’s revenue stream is much bigger than only limited to iPhones. Your D-Link wireless routers that you use at home has Broadcom chipsets in it as well.

Frankly speaking when the buy call on INARI was made, we were expecting record breaking revenue growth. Indeed it recorded the best revenue ever at RM375 million. But to be honest we were expecting something close to RM400 million since the iPhone 8 and X is what makes the difference for Q1 2018’s earnings. Apparently it’s not!

We actually fear that Q3 & Q4 2018 revenue would decline and see a negative growth due to lower iPhone production. If margins don’t stick, then it would be bad and eventually registers a lower earnings per share.

Why We Called for an Exit?

I guess we haven’t explained why we called for an exit a couple of weeks ago… Would like to take an opportunity to do so.

1. Operation’s Director Selling (Not people from Insas)

If you recall, when the price of INARI flew to RM3.80, insider selling started to happen and usually those directors don’t sell in the previous rally. But this round is a little odd. They stopped selling when the price reached RM3.40 and we think that this is a very good indicator for the time being.

2. Dollar Decline effect

Furthermore, with the dollar decline pressure, we have yet to see huge currency effects on INARI much similar to what we see on other semiconductor companies.

3. iPhone X Production Cuts\

Days before the major correction we see in US, we saw the news on Apple cutting production (here). Apparently we think that this would affect the stock negatively but at that particular moment, INARI opened stable. We chose to take profit then.

What to do Going Forward?

1. Sit & Wait Approach

We think that the bonus issue would still see the stock trading stronger than the rest of the market. We suggest that you can wait for the ex-date and sell immediately once you’ve receive the bonus shares in the next 3 days. We believe plenty would be in a hurry to sell to cash out.

2. Sell Now

If you think that the chart is turning down, indeed you can sell now. Over the pass two weeks, volume had soften, MACD had turned down and OBV is on a lower lows trend. Basically technical recommendation shows that a correction might be coming. But of what magnitude? We have to find out along the way.

In conclusion, we think that it would take sometime before we recommend this again. Seemingly the premium to pay is quite high and as usual for Malaysian markets, post bonus issue, shares trade weak for awhile. We shall revisit then.

If you have a fat profit… Just sit on it! (I think you do). Not a time to be brave!