Review

• INARI’s FY24 core profit of RM301.7mn came in below expectations, accounting for 87.4% and 89.0% of ours and consensus’ full-year estimates. The variance was mainly due to higher-than-expected operating costs.

• A 4th interim dividend of 1.4sen/share was declared, bringing the YTD dividend to 7.7sen/share. (FY23: 8.2sen/share)

• YoY, FY24's core profit dropped 5.9% to RM301.7mn, although revenue was 9.2% higher at RM1,478.7mn. The weaker bottom line was mainly attributed to unfavourable movement in foreign exchange rates and higher operating costs. Additionally, the group was also affected by higher electricity rates and losses in work-in-progress items arising from glitches in the electricity supply early in the year.

• Meanwhile, the group also suffered from lower gross margins due to new product launches. Although profitability declined, with the core net profit margin narrowing from 3.3pp YoY to 20.4%, it remained well above the industry average.

• QoQ, 4QFY24’s core profit dropped 7.9% to RM58.6mn, while revenue was 4.2% lower at RM333.1mn. The softer earnings performance was mainly due to lower revenue, unfavourable movement in foreign exchange rates, and a lower-margin product mix.

• It maintained a robust balance sheet with a net cash position of RM2,260.7mn as at end-4QFY24.

Impact

• Following the weaker-than-expected results, earnings forecasts for FY25 and FY26 were cut by 7.1% and 8.0%, respectively, after factoring in higher operating costs.

• Meanwhile, we introduce FY27 numbers with a projected net profit of RM499.9mn, representing an earnings growth of 6.7%.

Outlook

• Looking ahead, we remain optimistic about INARI's medium-to-long-term prospects, supported by: i) the growing demand for AI-capable smartphones, ii) new product introductions, and iii) customer diversification efforts facilitated by the China Plus One strategy.

Valuation & Recommendation

• After revising the earnings forecasts, we reduced the target price from RM4.43 to RM4.10 based on a PE multiple of 33.0x CY25F EPS and a 3% ESG premium. Maintain a Buy call on INARI.

Source: TA Research - 28 Aug 2024