Review

• Inari’s FY23 core net profit of RM320.5mn (-17.3% YoY) came above ours but within consensus full-year estimates at 107.3% and 97.1%, respectively. On our end, the positive variance was due to better-thanexpected profitability. 4QFY23’s EBITDA margin expanded 3.0pp QoQ to 27.6% on the back of higher utilisation rates from the higher margin radio frequency (RF) segment and favourable USD against the Ringgit.

• Inari declared a 4th interim dividend of 2.0sen (4QFY22: 2.2sen). This brought FY23’s dividends to 8.2sen (FY22: 10.0sen), implying a payout ratio of 94.4% and yield of 2.7% at current levels.

• YoY. FY23’s revenue and core net profit declined 12.5% YoY and 17.3% YoY to RM1,354.0mn and RM320.5mn. This was mainly due to broadbased weakness across all segments, including radio frequency (-14.0% YoY), optoelectronics (-9.8% YoY), and generic (-12.5% YoY). On top of lower utilisation rates, profitability was also impacted by higher energy costs. EBITDA margin narrowed 3.6pp YoY to 30.1%. As a % of total revenue, contributions remained led by RF at 59% (+2.6pp YoY). This was followed by optoelectronics at 33% (+1.0pp YoY) and generic at 8% (- 3.6pp YoY).

• QoQ. 4QFY23’s revenue and core net profit grew 8.3% QoQ and 24.6% QoQ to RM298.8mn and RM65.0mn. This was driven by higher loadings from the RF segment as well as tailwinds from the stronger USD against the Ringgit.

• Meanwhile, Inari maintained a robust balance sheet with a net cash position of RM1,831.0mn (-2.9% QoQ, -7.1% YoY) at end-4QFY23.

Impact

• As we impute FY23 year-end figures into our model and raise our margin assumptions to reflect actual 4QFY23 results, our FY24F/FY25F earnings estimates are revised by +7.0%/+5.6% to RM382.6mn/RM444.8mn. Meanwhile, we also take the opportunity to introduce our FY26F earnings estimates of RM475.4mn.

Outlook

• Despite prevailing macroeconomic headwinds and the semiconductor sector’s slowdown, Inari is cautiously optimistic on FY24. Prospects for the group include i) the nascent 5G smartphone upgrade cycle, which would benefit its RF segment, ii) new product introduction, and iii) customer diversification efforts facilitated by the China Plus One strategy.

Valuation & Recommendation

• Corresponding to our earnings upgrade, our TP for Inari is raised to RM3.15 (previously RM2.95) based on a PE multiple of 28.0x CY24F EPS, which is on par with the stock’s 5-year mean. Maintain Hold.

• Key downside risks include geopolitical tensions weighing on economic growth and disrupting supply chains, strengthening of the Ringgit against the USD, surge in commodity prices, and material shortages.

Source: TA Research - 30 Aug 2023