Review

• Inari reported a 1HFY17 core net profit of RM105.5mn (+19.7% QoQ, +21.3% YoY). Numbers came within ours and consensus forecasts at 50.6% and 54.6%. A second interim dividend of 1.8sen (YTD: 4.8sen) was declared.

• Revenue moderated 2.3% YoY, on slightly lower RF utilisation rates of 75% (1QFY17: 78%). Nevertheless, EBITDA margins improved 4.1pp, due to a higher USD/MYR rate (+6.7% QoQ) during the quarter.

Impact

• Make no changes to our estimates, pending an analyst briefing to be held later today.

Outlook

• FY17 growth will be driven by its RF division. Despite a slowdown in smartphone unit sales, growth is supported by an increase in RF content within smartphones. Broadcom expects its FBAR and connectivity portfolio to maintain a 20% growth rate over the next two to three years. The group will also proceed with plans to build P13B, but discussions are still preliminary.

• We also expected to see increased contributions from P21 in the coming quarters. Inari Integrated Systems, its division serving wired and wireless networking products have been progressing well. Utilising its grant from MIDA, plans are to eventually expand its capacity to 58 testers. P21 will also house Inari Optical Technology, a new business involved in infrared LED modules. We understand the technology will be applied into smartphones for iris scanning capabilities.

Valuation

• Our TP for Inari is maintained at RM2.05/share – based on a PE of 18x and CY17 EPS of 11.4sen. We place our call on the stock to Under Review, as we gather further information from an analyst briefing to be held later today.

Source: TA Research - 24 Feb 2017