We attended Inari’s 4QFY15 briefing hosted by its CEO Mr Lau Kean Cheong. Management has reaffirmed its intention to grow the RFdivision in tandem with Avago’s expansion and is looking to allocate MYR100m-110m for its FY16 capex. Maintain BUY with our SOP-based TP unchanged at MYR4.55 (45% upside).
Continued radio frequency (RF) expansion. Inari Amertron’s (Inari)RF division currently houses 550 units of testers. Management is looking to increase this to >700 units by September in tandem with Avago Technologies’ (AVGO US, NR) volume requirements. We expect machines to be installed in stages in its P13 manufacturing plant that hasa full capacity of >850 testers (based on existing floor space) to be achieved by 3Q16. We are forecasting for revenue from its RF division to grow at 35%/20%/5% for FY16/17/18F. On a side note, management guided that the wafer supply bottleneck at Avago’s level is gradually being resolved as volume picks up in July and Aug.
FY16F capex guidance MYR110m. The group has set aside MYR100m-110m for its FY16F capex. This includes MYR45m for machinery procurement, MYR35m for a new production facility, with the remaining to cater for automations and procurement of wafer probers. We expect this to be funded internally, with its net cash closing at MYR231m, as of June 2015. Management is currently exploring the possibility to set up a new site on Penang Island to further expand its RF capacity by another 30% while its existing land in Batu Kawan will be reserved for its 51%-owned Ceedtec’s expansion as well as new business opportunities.
Other highlights. We were introduced to Mr Dimiter Yordanov, the R&D Product Development Head for its 100%-owned Inari South Keytech(ISK) during the briefing. ISK intends to quintuple its annual revenue to USD25m by 2017 by working with Avago to capture other open sources by offering value-added services on the latter’s existing fibre-optics connector offerings and, subsequently, marketing the products to Tier-2 and Tier-3 customers that Avago currently does not serve.
Maintain BUY. All in, we maintain our BUY call with our fully diluted SOP-based TP unchanged at MYR4.55. We advise investors to ride on the earnings accretion from the favourable forex environment as well as RF capacity expansion, while full earnings accretion from its P13 plant is likely to kick in come FY17.
Source: RHB Research - 24 Aug 2015
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INARICreated by kiasutrader | Jun 14, 2016
Created by kiasutrader | May 05, 2016