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Write a comment..http://www.theedgemarkets.com/my/article/datasonic-rises-12-multi-million-ringgit-contract-rumour

hope RHB take out the report as fast as possible or else danger of UMA, report must have a new target price

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this is the reason why i always admire CIMB RESEARCH, they are more transparent when compared to this RHB

actually RHB who is covering up this stock should had taken out the report yesterday, so cunning this snakes

very funny ha,, RHB RESEARCH KNOWS, but they are not taking out any reports now, they are buying and waiting it to go near the target price.. then only this snakes will take out the report..so snakey ha

MR K BELLY IS FULL NOW

TCB please give TA on Datasonic. thanks. others are also welcome

now people want to see the earning report first

very helpfull site, thanks to the founders

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Mr Ooi, today 2 good news,, first HEVEA GOES INTO EX, AND CIMB LATEST COVERAGE ON EVERGREEN, WITH TARGET PRICE 2.90... which stock is better out of this 2, please advise?

hevea is arround less then 1 now, should i buy it? please advise

cimb target 2.90,,,i think new coverage stock by cimb

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http://klse.i3investor.com/blogs/DannyTanSiongKee/80088.jsp

in 2 to 6 months, 1.80---2.0 target price wow so good

Theme play now is export counters selling their products in US dollars will benefit

CIMB STARTING COVERAGE ON INARI,, TARGET PRICE 4.50

Room for another leg-up
Inari-Amertron’s share price performance since its listing in 2011 has been
stellar, rising some 770% in the last four years, which tracks its impressive
2011-14 earnings CAGR of 72%. YTD, its share price is up 40%, slightly above
the sector average of about 39%.

Inari-Amertron owes its strong earnings growth over the past 3-4 years largely
to the robust performance of its key customer, Avago. Avago, a leading designer,
developer and global supplier of a broad range of analog semiconductors,
operates in four markets: 1) wireless communications, 2) wired infrastructure,
3) enterprise storage, and 4) industrial & others.
Avago has a strong position in the smartphone RF segment, mainly due to its
proprietary technology called film bulk acoustic resonator (FBAR) filter. We
understand the FBAR filters have a superior performance in blocking unwanted
signals from being transmitted to the smartphone and reducing the insertion
loss. This provides better voice and data quality. The FBAR filters also enable
multi-band capabilities that allow the smartphone to operate over various
frequency bands across multiple regions around the world. Avago expects to see
continued growth in FBAR filter demand, fuelled by complex filter
requirements on the back of the global shift towards 4G/LTE networks. We
understand that Avago supports as many as 15 different bands with the FBAR
products.

Apart from that, Inari has, with the help of its diversified exposure, achieved a
commendable track record of steady earnings growth relative to its domestic
peers like MPI and Unisem which were affected by the downturn in global
semiconductor sales in 2011-13.

We are encouraged by the gradual improvement in group EBITDA margin since
Sep 2013, the result of better operating efficiency at the Amertron facilities and
various cost-saving exercises carried out by management in the past 18 months.
Management remains optimistic that Amertron’s PAT margin can improve to
about 10% from the 6-8% level currently.
For 9MFY15, Inari’s core net profit surge 64% yoy from RM68.3m to RM112.2m
driven by higher contribution from RF segment and better operating margin
from Amertron. Nevertheless, the group earnings in 3QFY15 fell by 6% qoq
from RM40.3m to RM38.1 partly due to seasonal weakness in industry demand
and capacity constraints from its key customer. However, Inari earnings is
expected to improve in 4QFY15 driven by seasonal pick-up in industry demand
and we foresee further earnings improvements in 2HCY15 following additional
wafer capacity from its key customer and maiden contribution from its P13
plant.

Amertron contributed approximately 55% of group revenue in FY14, followed
by the RF segment with 39%. The remaining 6% came from Ceedtec and ISK.
Management expects revenue from RF, Ceedtec and ISK to trump that of the
Amertron segment in FY15, with 55% of group revenue coming from the three
units due to stronger growth from wireless devices such as smartphones
compared to 45% from Amertron.

DNA for strategic acquisitions
Since its listing in 2011, the group’s earnings have grown fivefold from
RM19.4m in FY11 to RM99.2m in FY14, partly due to its strength in
earnings-accretive acquisitions. Over the past 3-4 years, the company has made
a few strategic acquisitions. It completed the acquisition of a 51% stake in
Ceedtec in 2012 at an estimated cost of about RM4m. Ceedtec provides
electronics testing and measurement equipment for the Agilent group in the
automotive and laboratory applications. Ceedtec contributed about 5% of the
group’s revenue in FY14.
Inari also acquired Amertron Inc. (Global) Limited for US$32m (RM103m) in
2013. The acquisition of Amertron helped Inari to diversify its product offerings
to optoelectronics manufacturing and fibre-optic assembly and diversify its
customer base. Amertron’s portfolio mainly comprises fibre optics products,
infrared and LED-based optoelectronics and IC packaging. Amertron’s main
clients are Avago and Osram, making up 70% and 20% of Amertron sales
respectively. Amertron has two manufacturing plants in the Philippines and
one in China. Following the consolidation last year, Amertron became the
largest revenue contributor, making up 55% of the group’s revenue in FY14.
In addition to strategic acquisitions, Inari also set up its own research &
development and manufacturing activities in fibre optics components in Inari
South Keytech in 2012.

The company was listed on the ACE Market in July 2011 as Inari Bhd with an
initial market capitalisation of about RM125m. Following the completion of the
acquisition of Amertron Global in June 2013, the group changed its name to
Inari-Amertron. Inari-Amertron was successfully transferred to the Main
Market in June 2014, just three years after its initial listing on the ACE Market.

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BACKGROUND
Integrated semiconductor back-end services provider
Inari-Amertron Bhd was founded by four engineers – Dr Tan Seng Chuan, Ho
Phon Guan, Mai Mang Lee and John Tan Lee Pang – in June 2006 with the
establishment of Inari Technology Sdn Bhd (Inari Technology). Inari
Technology is mainly involved in back-end semiconductor packaging, which
comprises back-end wafer processing, packaging assembly and radio frequency
(RF) final testing for wireless devices such as smartphone, media tablets, etc.

Inari is our new top pick in the domestic semiconductor sector given its
attractive valuation and stronger growth story in the smartphone and tablet
segment compared to MPI and Unisem. With strong manufacturing capabilities
in RF products and a global partner in Avago, Inari is a prime beneficiary of
rising demand for RF products. We recommend investors to accumulate Inari.
Potential re-rating catalysts include higher RF component growth per
smartphone, sustainable margin expansion at Amertron and consensus
earnings upgrades. We expect rising adoption of advanced RF components in
smartphones to drive up ASP and volume growth for Inari and mitigate the
slowdown in growth of smartphone volume. We foresee that an improving
product mix coming from products such as fibre optic components at Amertron
will drive further margin expansion.

Starting coverage with an Add
Inari has been trading at an average P/E discount of 10% to the sector over the
past seven months. This is a reversal from its historical trend of 10% premium
over the domestic sector average. In our view, the group’s fundamentals are
intact and the stock should command a premium over its peers given its 1)
stronger 3-year earnings CAGR of 36% vs 24% for the sector, 2) better leverage
on RF content growth in smartphones and tablets, and 3) PEG of 0.4x, which is
the most attractive in the sector and stands at c.30% discount to the sector
average of 0.6x.
We initiate coverage on Inari with an Add rating and a RM4.50 target price
based on 16x CY16 P/E, a 20% premium over the domestic semiconductor
sector average of 13x.

VALUATION AND RECOMMENDATION
Strongest growth in the industry
Inari-Amertron offers the strongest growth profile in the domestic
semiconductor industry over the next three years, with a projected FY14-17
earnings CAGR of 36% (vs 24% for the semiconductor sector), thanks to its
capacity expansion slated for 2H15 and rising adoption of its products due to
increasing global penetration of 4G networks.

Beneficiary of firmer US$
We expect Inari to benefit from the US dollar’s strengthening against the
ringgit (8.6% YTD). We estimate that about 95% of the group’s FY14 sales were
denominated in US$ (vs. 60% of total costs, mainly raw material cost). Based
on sensitivity analysis provided in the group’s latest annual report, every 10%
increase in the US$/RM rate would translate into a RM30m or 20% increase in
Inari’s FY15 core net profit. Overall, we believe the stronger US$ is positive for
the company.

Room for higher dividend
In 9MFY15, the company paid a total dividend of 6.6 sen, 32% higher than
9MFY14’s 5 sen. While Inari has a dividend payout policy of 40%, it has been
paying more than that. Based on our estimates, the stock offers FY15-17
dividend yields of 2.6-3.5%, which is lower than its domestic peers. Nonetheless,
we see potential for a higher dividend payout from Inari given its strong free
cash flow generation.

Dupont Analysis
The group’s ROE reached a peak of 47.7% in FY14, mainly due to exceptional
growth in sales following the completion of the Amertron Global acquisition. Its
asset turnover shot up to 1.8x compared to the historical pre-acquisition
average of 1.2x. While we expect the group’s profitability to improve from FY15
onwards, it is not sufficient to sustain the high ROE level given that the rate of
normalisation of its asset turnover and decline in the leverage ratio will outpace
margin expansion. Its asset turnover is expected to normalise and the group is
gradually reducing its leverage following the completion of a rights issue in
3QFY15.

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Improving yield at Ceedtec
Another potential earnings driver for the group is a pick-up in Ceedtec
utilisation rates. Ceedtec has been struggling with production yield issues since
2H14 and management is actively working on improving the production
efficiency in 2H15. We expect Ceedtec’s revenue to increase by 25% in FY15 due
to a pick-up in its utilisation rates resulting from higher test equipment
demand from its key customer, Agilent. Although the overall impact on the
group will be minimal, with its revenue contribution rising from 6% of group
revenue in FY15 to 8% in FY17, we expect Ceedtec’s revenue growth to
strengthen to 45% in FY16 and 50% in FY17. Moreover, we see further upside
for Ceedtec as management is also looking at the possibility of listing the
company over the next three years once its earnings improve.
Turnaround in fibre optics division
We see the potential turnaround of the Inari South Keytech (ISK) division as
another potential growth driver for the group. Currently, ISK is mainly involved
in R&D and the manufacture of fibre optic components. We understand that
ISK has been loss-making since its inception in 2012. We expect it to turn
around in 2016 due to stronger demand for fibre optic components.
Strong finances
Despite its various expansion strategies, Inari remains disciplined and prudent
with its capex. Its balance sheet remains healthy, with a net cash of RM261m as
of Mar 2015 following the completion of a rights issue in 3QFY15. The group
successfully raised about RM118m cash in the rights exercise. Overall, the
group’s balance sheet and free cash flow generation remain strong, which
would support another potential expansion in the coming years.

Robust demand from RF components to continue
RF will remain the group’s major growth driver as we expect RF component
shipment volume to rack up an FY14-17 CAGR of 30% following the capacity
expansion at the P13 plant. We expect RF’s earnings contribution to the group
to increase from 60% in FY14 to 66% in FY17. We believe the target is
achievable given the robust demand for RF components in smartphones and
tablets from emerging markets like China due to the transition towards the
4G/LTE network, multi-band requirement and explosive mobile data growth.
According to Avago’s CEO, Hock Tan in the company’s latest conference call,
“There is continuing increase in demand for FBAR for use on China LTE bands
as penetration of those phones increases.”
Inari Semiconductor Lab is a new growth driver
Inari Semiconductor Lab (ISL) is set up in 2015 as part of the group strategy to
move up the value chain with an initial capital outlay of about RM15m.
Management expects to increase the investment to about RM38m by 1H16. ISL
is mainly involved in the fiber optics wafer processing in chip fabrication, facet
coating and testing. In term of revenue contribution, we project ISL to rake in
about RM50-100m by FY16-17. While the revenue contribution will be
relatively smaller compared to RF and Amertron segments, management
highlighted that it expect the new segment will boost the group earnings given
that it offers better PAT margin of about 15% compared to assembly lines of
8-9% PAT margin. We expect ISL to contribute between 4-6% to the group PAT
in FY16 and FY17.
Better operating efficiency from Amertron
Apart from that, we expect Amertron sales to grow moderately in line with
industry growth of about 4-5% in FY16 given the nature of its mature product
lines and capacity constraints. Moreover, we expect Amertron contribution to
the overall group revenue to decline from 55% in FY14 to about 33% in FY17
given the lagging growth compared to the other divisions. Nonetheless, we still
forecast Amertron to record higher sales of 15% in FY17 driven by strong
demand from fiber optics components. We expect the fiber optics segment to
fill the new capacity in Clark 2 plant that is expected to start operation in 2H16.
Meanwhile, management remains committed to continue its cost-savings
initiatives to drive Amertron’s profitability from 5-7% PAT margin currently, to
about 8-10% level within next three years.

Multi-stage earnings growth
Since its listing in 2011, Inari’s earnings performance has been exceptional. The
group’s net profit rose from RM19.4m in FY11 to RM99.2m in FY14, which
translates into an FY11-14 CAGR of 72.4%. We expect Inari to continue its
growth trajectory over the next three years, thanks to capacity expansion that is
expected to come onstream in 2H15.
We expect the group’s earnings to jump by 54% in FY15, driven by strong
demand for its ever-growing RF segment and better operating efficiency from
Amertron following various cost-saving initiatives that were carried over the
past 12-15 months. We project a slowdown in earnings growth to 27% in FY16,
which is expected to come from higher RF volume and a new revenue stream
from the wafer chip fab business following the completion of capacity
expansion at the P13 plant in Penang. We attribute the slower growth in FY16
earnings to the gradual increase in its production capacity and higher expenses
related to the start-up cost for its wafer chip fab business.
For FY17, we project a pick-up in the group’s earnings growth rate to 30% on
the back of higher contributions from the RF and wafer chip fab businesses,
additional contribution from Amertron following its capacity expansion in the
Amertron Clark facility and the turnaround of the Inari South Key fibre optics
division. Overall, we project an FY14-17 earnings CAGR of 36%. Based on our
assumption, Inari-Amertron’s overall earnings outlook is as follows:

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RISKS
High sales exposure to Avago
Avago (AVGO US, Not rated, US$128.05) is a major customer for
Inari-Amertron, contributing more than 70% of the company’s revenue in FY14,
by our estimate. Its dependence on Avago is, in our view, a significant risk to
Inari’s prospects. Any disruptive technology that could replace Avago’s FBAR
filter in the premium filter market would be a key risk to Inari. For example, we
gather that Skyworks Solution (SWKS US, Not Rated, US$95.60) is partnering
with Resonant (RESN US, Not Rated, $2.90) to develop a new smartphone RF
filter through infinite synthesised networks (ISN) technology using SAW filter
which could replace Avago’s filter given its cost advantages with matching BAW
performance.
Inari has gradually reduced its dependence on Avago following several
acquisitions over the past three years. For example, its acquisition of Amertron
Global helped to bring in a new client for the optoelectronics segment, Osram.
Inari also gain another new customer in Agilent following its acquisition of
Ceedtec. Inari’s exposure to Avago has gradually decline from 99% in FY11 to
about 75% in FY14.

SWOT analysis
Our SWOT analysis highlights that Inari’s strength lies in its highly experienced
management team and strong partnership with Avago as one of the leading and
cost efficient EMS service providers for RF packaging and testing. While its
high reliance on Avago exposes it to single customer risk, we understand that
management has developed a strategy to reduce its dependence on Avago by
growing its customer base following several acquisitions. In our opinion, the
strong partnership with Avago may turn out to be beneficial to Inari as it stands
to gain market share following Avago’s Broadcom acquisition.

Potential beneficiary of Avago’s Broadcom acquisition
We think that Inari-Amertron stands to benefit from Avago’s US$37bn
Broadcom acquisition through potentially higher volume from Avago given its
strong relationship and manufacturing capabilities. In addition, Avago’s
strategy to diversify its supplier base beyond tier-1 OSAT players like ASE (2311
TT, Add, $39.50) is positive for Inari.
We do not see any major issues for Inari to raise its production capacity to meet
the potential rise in volume given that it is on track to open the P13 plant in
Bayan Lepas in 2H15. Moreover, the company has already bought a 5-acre plot
of land in Batu Kawan for an estimated RM8m last year. We understand that
Inari is planning to construct a new manufacturing plant in 2016-17 to cater for
its next growth strategy.

2) Clark, the Philippines
The company is building a new production facility (CK2) that will increase
the existing Amertron Clark’s production floor space from 115k sq ft to
205k sq ft. Management expects to start production in June 2016.

In terms of product mix, P13 will handle a new outsourcing job for its major
customer, Avago in wafer processing service. Management expects to enjoy a
better margin from the new wafer chip fab line given that it offers
higher-value-added services. Management is targeting RM50m-100m revenue
from the new line in FY16-17. Inari also plans to add 150 testers in P13, which
will raise its tester capacity by 30%, making Inari one of the biggest RF testing
service providers in the region.
Apart from that, Inari is also looking at potentially adding 100k sq ft to P13’s
floor space in 2016 by constructing a new building next to the main plant in P13.
The total land area for P13 is estimated to about 5.5 acres.

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Riding on Internet of Things (IoT)
Apart from the transition towards 4G networks, we see Internet of Things (IoT)
as another catalyst for data traffic volume. Gartner estimates that the number
of connected devices will far exceed the global population by 2020, with 25bn
connected objects by that year. These connected devices may include one or
more sensors that would monitor specific locations, vibration, motion and
temperature. Through IOT, these sensors would connect to a system that can
understand and analyse the data to provide new information to an
organisation’s system and to individuals. Overall, the huge network of
connected devices will contribute to a significant increase in data traffic
volume.

We see more room for ASP growth as Qorvo estimates that the total RF dollar
content makes up only 6% of the total smartphone bill of materials.

Three key products under the RF segment are power amplifiers, filters and
packaging. According to market research firm, Disruptive Tech Research (DTR),
RF filters are gaining more dollar content per smartphone due to advanced
application requirements. For example, the filters’ dollar content in the iPhone
6 with 4G capability is 7x that of the typical 3G phone.

More advanced filters are required to support the multiple band frequency for
each network. For example, different networks such as 2G, 3G and 4G will
require different filter specifications. There is also the requirement for
backward compatibility to support the legacy bands and older network. Overall,
we believe this will translate into higher RF content per smartphone.

According to market research group GfK Research, 4G smartphone shipment
volume surpassed 50% of global demand for the first time in 1Q15, thanks to
stronger demand from China. GfK expects global 4G share to increase to 59% of
global smartphone shipments in 4Q15, stoked by growing demand in emerging
markets such as India and Indonesia which make up less than 10% of total
smartphone demand currently.
Advanced RF will lead to higher smartphone content value
Avago highlighted that RF content in smartphones is expected to increase in
tandem with the rise in network requirements. According to Avago’s group CEO
Hock Tan in its latest quarterly earnings conference call, “The general trend in
high-end smartphone is that the number of bands those high-end smartphones
as generations progress continue to support, continue to increase very, very
linearly in our view. So from one generation to the next, we are seeing
significant increase in our content. “ This highlight the strong demand for
smartphone RF components, despite the slowing growth in smartphone
volume.

Transition to 4G is just beginning
In addition, we see the transition towards the faster 4G/LTE network as
another key driver of RF demand. According to an independent research group,
GSMA Intelligence, global 4G mobile network penetration is likely to increase
from 26% in 2014 to 63% in 2020. Rising 4G network penetration augurs well
for RF component manufacturers like Inari-Amertron given the higher and
more advanced filter requirement to support the 4G network.

We are not overly concerned about the moderating smartphone shipment
volume as we expect smartphone RF content to increase in order to support the
strong data demand. According to Qorvo, smartphone manufacturers require
further enhancement in RF performance to increase the mobile data
throughput.