With semiconductor shortage everywhere coupled with its available space in P34, Inari is primed to benefit and could likely secure new customers soon. Having expanded its radio frequency (RF) assembly capacity from 8 to 22 lines recently (from Sep to Dec 2020). Upcoming earnings are expected to be robust. BUY with a Target Price of RM4.00 based on rolled forward FY22E PER of 40x (previously 35x), justified by a super technology cycle driven by 5G and prospects from potential new customers/M&A which are not priced-in by the market as yet.

For 2021, key themes for the technology sector are 5G and EV. As such, we believe Inari, being one of the purest 5G plays in Malaysia, could see continuous re-ratings and rising interests from investors. With the re-emergence of foreign funds, Inari stands out given its 16-18% foreign shareholdings and also having one of the best international visibility among the Malaysian technology stocks. More importantly, Inari is one of the cheapest in terms of forward PE whilst offering superior growth prospects among large technology peers locally. It is also noteworthy that Inari has reached a new milestone by crossing RM10bn market cap strengthening its No.1 position as the Malaysian technology leader.

We have been hearing of semiconductor shortage everywhere to the extent that regional OSATs are raising prices due to exceptionally robust demand. Recall that Inari has recently completed its massive expansion in Batu Kawan with 680k sq. ft. floor space, of which 480k sq. ft. remains unutilised. This puts Inari in a prime position to welcome multinational corporations (MNCs) as potential customers. As these MNCs are seeking for partners that can deliver with minimal disruption and shortest time-tomarket, Inari ticks all the boxes given its proven operational track record. Meanwhile, management is already in talks with two MNCs and could firm up something soon.

Inari has just expanded its RF system-in-a-package (SiP) assembly capacity from 8 lines to 22 lines in phases (from Sep to Dec 2020), thanks to doubling of RF content in the latest generation US smartphone. By now, all new assembly lines are already in production mode, which means meaningful contribution should kick in from 3QFY21 onwards. As per our check last week, Inari is currently running at 90% utilisation, defying the typical seasonality, and signalling robust earnings.

Source: Rakuten Research - 27 Jan 2021