Review

• Inari reported a 1QFY17 net profit of RM48.0mn (+20.3% QoQ, +5.5% YoY). Numbers were within ours and consensus estimates at 24.7% and 25.7%. A first interim and special dividend of 2.3sen and 0.7sen were declared.

• The group kicked off its financial year with a good set of results. Revenue and profit increased 10.4% QoQ and 20.3% QoQ. This was due to the ramp up of a major smartphone launch, as average RF utilisation rate increased to 78% (4QFY16: 70%). YoY, better revenue (+2.4% YoY) and profits (+5.5% YoY) were due to increased contributions from ISL and a recovery of RF volumes.

Impact

• Keep our numbers unchanged, pending an analyst briefing to be held later today.

Outlook

• Growth in FY17 will be driven by its RF division. Fuelled by P13, targets are to expand its tester capacity to 750 testers by March 2017. This is to be supported by an increase in RF content, despite a slowdown in smartphone sales. Broadcom expects its combined FBAR and connectivity portfolio to maintain in 20% growth rate over the next two to three years.

• Its new business, Inari Integrated Systems, has been set up at P21. The facility will provide test development, product engineering, wafer probe and package test services for wired and wireless networking products. Within the next year, targets are to build capacity to 58 testers. Recall, capex for IIS will be supported by a 1:1 matching grant secured from MIDA.

Valuation

• Leave our TP unchanged for Inari at RM3.40/share – based on a PE of 16x and CY17 EPS of 21.1sen. We revise our existing call on the stock to Under Review, pending an analyst briefing later today

Source: TA Research - 23 Nov 2016