Investment Highlights

• We maintain BUY call on Inari Amertron (Inari) and fair value (FV) of RM3.72/share, pegged to an unchanged CY23F PE of 25x, which is 0.5 standard deviation below its 5-year mean of 28x. We continue to ascribe a 4-star ESG rating, which translates to a 3% premium to Inari’s FV (Exhibit 3).

• Broadcom has secured a new multibillion-dollar agreement with a North American smartphone maker to develop 5G radio frequency (RF) components including Film Bulk Acoustic Resonator (FBAR) filters and cutting-edge wireless connectivity components.

• This is in line with our base case scenario that Broadcom will continue to play a key role in the North American smartphone maker’s supply chain, particularly related to its core strength – the RF chips.

• Therefore, we retain FY23F-FY25F earnings. Recall that RF contributed 62%-64% of Inari’s revenue in recent quarters.

• The group’s long-term prospects stem from:
  i. the resilience of its radio frequency (RF) earnings and margin due to higher chip complexity in 5G devices and applications;
  ii. the company’s plans to enhance and diversify revenue streams via joint ventures in outsourced semiconductor assembly and test manufacturing operations in China; and
  iii. formidable net cash position of RM2bil as at December 2022, which translates to 24% of its market capitalisation.

• However, a worse-than-expected slowdown in demand from the mobile device segment due to a global economic recession may pose downside risks to our earnings forecast and fair value.

• The strengthening of MYR against US$ will also be unfavourable to the group given that exports account for 95% of 1HFY23 sales.

• The stock currently trades at an attractive FY23F PE of 18x vs its 5-year mean of 28x and offers a decent dividend yield of 3%.

Source: AmInvest Research - 24 May 2023