Inari to benefit from its radio frequency business resilience

by NUR HAZIQAH A MALEK / pic by BLOOMBERG

AMINVESTMENT Bank Bhd maintained its ‘Buy’ call on Inari Amertron Bhd with an 11% higher fair value of RM2.78 per share due to the company’s radio frequency (RF) division’s contribution with the addition of more system-in-package (SiP) lines.

In a note yesterday, the research house said despite headwinds from the Covid-19 pandemic, the company is a proxy for 5G growth through its RF business.

“The group’s positive prospects arise due to the resilience of its RF earnings contributed by higher chip complexity in 5G phones; potential growth in laser devices from more biometric and augmented reality applications; and its efforts to enhance and diversify revenue streams,” it noted.

The company’s RF division is also increasing its SiP lines by five between mid-October and early December 2020, raising its total SiP lines to 22 from eight lines in the financial year of 2030, which is an increase by 2.75 year-on-year.

“The strong RF demand is accredited to a key US smartphone maker’s 5G-enabled releases, leading to expectations of a potential 5G-driven upgrade cycle for consumers,” it said.

Similarly, the company is working on realising strategies to enhance its customer base and revenue streams.

“As for Inari’s joint venture with MIT Semiconductor Pte Ltd to provide customised semiconductor manufacturing solutions, the group is strategising critical in-house developed processes and already started filing patents for their projects,” it said.

The company’s Hong Kong-based customer is also seeing its front-end assembly lines being set up, addressing the incoming new customers.

“Inari’s Hong Kong-based customer in Clark, Philippines, completed setup for back-end testing in June 2020, while the front-end assembly lines are currently being set up.

“Mass production is slated for January 2021,” it said.

The company on Monday also released its annual report for the financial year ended June 30, 2020.

Its chairperson Tengku Datuk Aishah Ahmad Shah said the year was a challenging year affected by uncertainties caused by the continuing US-China trade war and the pandemic, which have affected industries and sectors indiscriminately.

“Fortunately for the group, the demand for online services arising from population lockdowns meant that semiconductor products remained in demand.

“Despite the Movement Control Order which began on March 18, 2020, and global supply chain disruption to varying degrees since February 2020, the group worked diligently and managed to post revenues of RM1.06 billion, a net profit of RM156.4 million and an Ebitda of RM273.5 million for the financial year under review,” she said.

She also made note that the company invested RM89.4 million in capital expenditure to increase its capacity in packaging, testing and improving production facilities and equipment.

“The financial position of the group remains strong. The operations continue to generate healthy cashflow with cash and cash equivalents at RM594.6 million, and the group’s gearing ratio remains low at less than 0.01 time,” she said.

Moving forward, she added that the prospects for the industry will remain positive due to the rollout of new technologies like 5G, Internet-of-Things and artificial intelligence will continue to drive the demand for semiconductors.

“At Inari, we remain steadfast in our approach to work on and benefit from the adoption of these next-generation technologies,” she said.

The financial year saw the group’s revenue decrease from RM1.15 billion to RM1.06 billion, while its net profit decreased 18.7% to RM156.44 million from RM192.35 million previously, attributable to the decrease in optoelectronic products demand, lower production volume, product mix changes and higher depreciation cost.

For the year, Inari accelerated its dividend payout to 91.1% over its net profit, representing a total of 4.4 sen per ordinary share and a total payout of RM142.5 million for the year.