Inari Amertron’s (Inari) 1HFY15 (Jun) core earnings soared  57.1% YoY to MYR64.9m, in line with expectations. We maintain our BUY call and keep  our  ex-rights  TP  unchanged  at  MYR3.41  (17.5x  CY15  P/E;  19% upside). Management declared its  second  interim DPS of 1.8  sen and a special DPS of 0.5 sen. 1HFY15 DPS now stands at 4.5 sen.

Results review.  1HFY15 revenue closed  at MYR449.8m (+19.0% YoY),driven by  increased orders  for  its  radio frequency  (RF) division  from its customer  Avago  Technologies  (AVGO  US,  NR).  Core  earnings  of MYR64.9m (+57.1% YoY)  came in within expectations, at  50.0% of our and  47.4%  of  consensus  full-year  estimates.  2QFY15  numbers  are generally up on both YoY and QoQ basis with its core profit coming in at MYR34.1m (+10.6% QoQ; +52.9% YoY).   

Special dividend.  Management  declared a special DPS of 0.5  sen on top of its  second  interim DPS of 1.8 sen. This translates into a payout ratio of 34.9% for the quarter. 1HFY15 DPS now stands at 4.5 sen at  a 35.7% payout ratio, in line with its policy of up to 40% payout ratio.

Forecasts  and  risks.  We  make  no  changes  to  our  FY15-17  earnings estimates. Key risks include potential margins erosion upon maturity of Inari’s product life cycle and competitive pressure from its peers such as Foxconn  International  (2038  HK,  NR)  and  Advanced  Semiconductor Engineering (2311 TT, NR).

Rights  to  be  completed  by  Feb  2015.  Its  rights  issuance  will  be completed  by  end-Feb  2015.  The  gross  proceeds  of  approximately MYR115m  will  help  to  partially  fund  the  group’s  FY15-17F  capex,  of which  management  is  looking  to  allocate  MYR80m  for  the  radio frequency  (RF)  division,  MYR20m  for  transceiver  research  and development (R&D), and MYR40m for potential new business set-up.

Maintain  BUY.  We  reiterate  our  BUY  call,  with  our  ex-rights  TP unchanged at MYR3.41.  We expect FY16-FY17 earnings momentum to be driven by its new production plant known as P13. This new facility will host  additional  80-100  test  handlers  for  its  RF  division  (from  450-500units  currently).  We  expect  commercial  production  to  commence  in 2QCY15 and hence to propel earnings growth going forward. 

Source: RHB