Inari Amertron’s radio frequency division to fuel growth

by AZALEA AZUAR / pic source:

INARI Amertron Bhd’s radiofrequency (RF) division will drive growth by 20% year-on- year (YoY) for the financial year ending June (FY22). 

CGS-CIMB Securities Sdn Bhd analyst Mohd Shanaz Noor Azam stated the ongoing transition of 4G to 5G networks has contributed to higher RF content growth in mobile devices. 

“We project the RF division to contribute 62% to Inari Amertron’s FY22 sales (versus 60% in FY21). 

“We expect stronger YoY sales from the RF division in the first half of financial year 2022 (1H22) to be driven by order pull-in for legacy products and better sales mix going into new generation mobile devices in the 2H22 for North American smartphone makers,” he wrote in a report on Inari Amertron yesterday. 

The expected increase in interest rates has caused the global technology sector to weaken and in turn, lowered Inari Amertron’s stock price by 20% year-to-date (YTD). 

Hence, Mohd Shanaz has reiterated an ‘Add’ rating on the stock with a lower target price of RM4.30 that is based on a lower 33 times calendar year 2023 price-to-earnings ratio (P/E). 

“We think Inari Amertron commands a scarcity premium due to its size and unique position as a member of the Bursa FTSE4Good Index. 

“We see an earnings-accretive outsourced semiconductor assembly and test joint venture in China, stronger-than-expected RF chip demand, consensus earnings upgrades and new customer wins as potential re-rating catalysts for the stock,” he noted. 

Mohd Shanaz warned of risks to the ‘Add’ call could come from slowing demand for 5G smartphones, the ringgit appreciation against the US dollar and delays in customers’ wafer shipments due to supply shortages. 

Inari Amertron’s revenue for the 1H22 increased by 18% YoY supported by higher sales in all its divisions which are RF (14%), optoelectronics (15%) and generic integrated circuit packages (36%). 

All of its segments in mobile devices (14%), data communication (16%) and automotive (27%) enjoyed healthy YoY sales growth and comprised 88% of group revenue in the same period. 

As a result of higher operating leverage, Ebitda margin expanded 2.7% from 30% in 1H21 to 32.7% in 1H22. 

Inari Amertron’s 1H22 core net profit rose 36.5% YoY to RM215 million. The company also declared a second interim dividend per share of 2.8 sen for second-quarter 2022, bringing 1H22 dividend to 5.6 sen per share, in line with CGS-CIMB’s expectations. 

RHB Investment Bank Bhd analyst Lee Meng Hong also remained positive on Inari Amertron’s earnings on the back of the proliferation of 5G smartphones as well as its potential new venture in China. 

The investment bank maintained its ‘Buy’ call on Inari Amertron with a target price of RM4.63 after it managed to hit another record high core earnings of RM109.1 million. 

“Its results are in line, supported by higher loadings from all product segments and margin growth amid higher operating leverage. 

“Following the recent weakness in the sector, Inari Amertron is now trading at below the three-year mean (P/E),” Lee wrote in a release on the company yesterday. 

RHB’s target price on Inari Amertron is pegged to an unchanged 40 times P/E and after applying a 2% environmental, social and governance (ESG) premium, based on its in-house proprietary ESG methodology. 

“The recent share price weakness following the sector deration was due to worries over high inflation and the rising yield environment. 

“We believe this has resulted in an opportunity for investors to accumulate the only technology stock in the Bursa — given its growth visibility,” Lee added. 

He believes the mid-term structural growth of the 5G story, growing demand for semiconductor chips and very solid balance sheet would assist Inari Amertron in fuelling its growth. 

Inari Amertron share price fell by 4% or 13 sen to RM3.07 at close of market yesterday despite the upbeat calls by analysts.