Inari’s 1Q earnings hit new high on tech cycle boom

by ANIS HAZIM / Pic Source: inari-amertron-berhad

INARI Amerton Bhd recorded all-time higher earnings of RM105.6 million in its first quarter ended Sept 30, 2022 (1Q22) which came within estimates, driven by higher loadings from all its product segments.

Revenue for the quarter rose to a record-high of RM431.1 million, which is within analyst expectations at 26.9% and 27.4% of RHB Investment Bank Bhd and street full-year estimates.

The improved financial showing saw the stock close nine sen higher at RM4.09 yesterday, giving it a market capitalisation of RM15.1 billion. 

RHB Investment analyst Lee Meng Horng stated all of Inari’s business segments recorded higher loadings from customers amid healthy demand for semiconductor related chips and integrated circuits.

“The radio frequency (RF) business continued to enjoy a healthy growth momentum at 61% of 1Q22 revenue (53% in 1Q21), as more people buy 5G smartphones and related content grows,” Lee wrote in a report on the company note yesterday.

Inari’s earnings before interest, taxes, depreciation and amortisation (Ebitda) margin expanded 2.8 points to 32.2% from better operating leverage on the back of high utilisation rates and favourable foreign exchange (FX) movements. 

Inari’s first interim dividend per share (DPS) of 2.8 sen was declared in the quarter and will go ex on Sept 9.

“We expect Inari numbers to reach another record high in FY22, given the rising adoption of 5G smartphones and improved contributions from the optoelectronic segment. 

“This should anchor its earnings growth, while contributions from new customers onboarding should bring about further upside,” he stated.

The analyst also noted that Inari’s new China venture via a 55% joining venture (JV) with China Fortune-Tech Capital (CFTC) should be a mid-term growth driver.

RHB Investment has maintained its forecast for Inari and rolled forward its valuation base year to the calendar year of 2022 (CY22).

“As such, our target prices (TP) rises to RM4.63, pegged to an unchanged 40 times price-earnings (P/E), three standard deviations (sd) from the five-year mean, and after applying a 2% environmental, social and governance (ESG) premium based on our in-house proprietary ESG methodology,” 

The investment bank did not expect the Prosperity Tax to weigh in on Inari’s FY22 earnings since most of its income is derived from subsidiaries that have been granted pioneer status under the Promotion of Investment Act 1986. 

“Inari continues to be our sector top pick, given its growth visibility stemming from the mid-term structural growth of the 5G story and growing demand for semiconductor chips, coupled with a rock-solid balance sheet position,” he added.

The key downside risks to the “Buy” call include weaker-than-expected orders for 5G smartphones, escalation of the US-China trade war, and a stronger-than-expected MYR versus the USD.