Inari Amertron - Broadcom's RF contract renewed

Price Target: 
Price Call: 
Last Price: 
+0.87 (30.53%)

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

Be the first to like this. Showing 0 of 0 comments

Post a Comment