Inari’s RF segment to recover with 5G smartphones

Inari’s medium-term outlook more secured after Broadcom inks agreements to supply wireless components


INARI Amertron Bhd expects a recovery in its radio frequency (RF) segment for financial years 2021 (FY21) and 2022 driven by the introduction of 5G smartphones.

An increase in RF content to enable 5G technology is deemed sufficient to offset potential weakness in smartphone volume caused by the weak economic outlook, said AllianceDBS Research analyst Toh Woo Kim.

Although near-term volatility is likely to persist for the company in the second quarter (2Q) and 3Q of 2020, the research house said the medium-term prospects for Inari are more secure now following the agreements between Broadcom Inc with a US smartphone manufacturer.

AllianceDBS Research has upgraded its call on Inari to ‘Buy’ from ‘Hold’ with a revised target price of RM1.50 from RM1.55.

“The medium-term outlook for Inari’s RF segment is also more secured now after its biggest client, Broadcom recently signed multi-year agreements with a leading US smartphone manufacturer to supply wireless components (including RF chips) up to 2023.

“This gives a certainty that Broadcom (and hence, Inari’s RF segment) will remain involved in the supply chain for 5G components, and is not losing out to competitors as previously feared,” Toh said in a note yesterday.

He said Inari’s RF segment has grown at a five-year compound annual growth rate of 39% since listing in 2011, backed by strong orders from Broadcom.

Inari is also viewed to be ready for its RF capacity expansion following the growth of its Penang facility since 2015 with a new P13 plant, said Toh.

The plant has been fitted with a new floor and several extensions over the years to cater for the increasing RF orders from Broadcom. “Apart from this, Inari also built a new P34 plant in Batu Kawan, Penang, with an estimated floor space of 640,000 sq ft, which was completed in 2019.

“This should be sufficient to support future demand for RF capacity as well as business opportunities from new customers,” added Toh.

The research house, however, cut Inari’s FY20 earnings per share by 20% as its second half of 2020 should be negatively impacted by the reduced utilisation rate and weak demand.

“We cut FY21 and FY22 earnings by a smaller quantum at -9% and -7% respectively as the higher RF content for 5G smartphones should help offset the weaker end-demand for smartphones,” he added.

Toh added that a significant slowdown in demand for smartphones could affect sales of the RF segment although the impact may not be as severe due to rising RF content in smartphones.

“Factors that could affect Broadcom’s RF sales (such as introduction of better technology by peers) are also risks for Inari.

“Nevertheless, these risks are mitigated by continuous high-level research and development investments by Broadcom to improve and maintain the competitive edge of its film bulk acoustic resonator filters,” added Toh.