Following the analyst briefing, we remain optimistic about INARI's outlook, which is underpinned by the resilient earnings contribution from the radio frequency (RF) segment. Management believes that the introduction of a new AI-capable smartphone will be a solid boost to the RF segment. Meanwhile, the group will continue working on new projects as part of its customer diversification efforts. On the other hand, the new plant in China will continue focusing on new product qualifications. Overall, we maintain a Buy call on INARI with an unchanged target price of RM4.10.

Radio Frequency Segment Remains as the Key Driver

To recap, INARI's FY24 core profit dropped by 5.9% YoY to RM301.7mn, despite a 9.2% YoY increase in revenue to RM1,478.7mn. The higher revenue was largely driven by increased loading volumes in the RF and optoelectronics business segments. However, the group posted a weaker bottom line due to unfavourable foreign exchange rate movements and higher operating costs.

Moving forward, management has guided the RF segment to remain resilient, backed by higher content growth and higher testing time. Management believes that the introduction of a new AI-capable smartphone will be a strong boost to the RF segment. In terms of the sales breakdown, FY24 remained led by RF at 61%. This was followed by optoelectronics at 33% and generic at 6%.

Actively Working on New Products

The group will continue working on new projects as part of its customer diversification efforts. Management indicated that these new projects will remain focused on memory products, high-power LEDs, Edge AI-related packages, and optical/sensor products. Based on management’s guidance, the estimated CAPEX for new technology and new business is around RM150mn for FY25. Meanwhile, the group has been putting more effort and resources into developing advanced packaging capabilities in order to move up the value chain.

YSIC Is Focusing on New Product Qualifications

Management revealed that the semiconductor landscape in China has become very competitive. At this juncture, the group’s 54.5%-owned Yiwu Semiconductor International Corporation (YSIC) in China will focus on new product qualifications. For the chip-scale packaging, the JV has passed the qualification for 4 products. The low-volume manufacturing of these products has been delayed to 4Q2024 due to changes in wafer structure for cost efficiency. Meanwhile, the sample build for the system-in-package has been completed and is now progressing into reliability testing. The JV plans to offer wafer-level packaging and ball-grid array packaging at a later stage. Over the long term, management believes that YSIC will be able to capitalise on the strong growth of the semiconductor industry in China.

Impact

Maintain FY25 to FY27 earnings forecasts.

Valuation & Recommendation

No change to our target price of RM4.10, based on unchanged 33x CY25 earnings and a 3% ESG premium. Reiterate a Buy call on the stock.

Source: TA Research - 29 Aug 2024