Review

• INARI’s 9MFY24 core profit of RM243.1mn came in within our expectations but below the consensus forecast, accounting for 70.4% and 68.4% of ours and consensus full-year estimates.

• A third interim dividend of 1.9sen/share was declared, bringing the YTD dividend to 6.3sen/share. (9MFY23: 6.2sen/share)

• YoY, 9MFY24 core profit fell 4.8% to RM243.1mn, although revenue was 8.6% higher at RM1,145.6mn. The weaker bottom line was largely attributed to higher electricity rates and losses in work-in-progress items arising from glitches in electricity supply. The electricity supply issues have been rectified accordingly.

• Meanwhile, the group also suffered from lower gross margins due to new product launches. Although profitability suffered, with the core net profit margin narrowing from 3.0pp YoY to 21.2%, it remained well above the industry average.

• QoQ, 3QFY24 core profit dropped 32.2% to RM63.6mn while revenue was 16.0% lower at RM347.6mn. The softer earnings performance was due to lower loading volume in all business segments.

• It maintained a robust balance sheet with a net cash position of RM2,274.1mn as at end-3QFY24.

Impact

• Maintain FY24 to FY26 earnings forecasts.

Outlook

• Going forward, we remain sanguine on INARI’s medium-to-long-term prospects, underpinned by i) the growing demand for AI-capable smartphones, ii) new product introduction, and iii) customer diversification efforts facilitated by the China Plus One strategy.

Valuation & Recommendation

• We take this opportunity to roll forward our valuation base year to CY25. Consequently, we revised the target price higher from RM3.55 to RM4.30, based on unchanged 33x CY25F EPS. Reiterate Buy on INARI.

Source: TA Research - 24 May 2024