Inari Amertron (INRI MK; BUY; cum-rights TP: MYR4.20): Accumulate at weakness

Initiation: Inari Amertron (INRI MK; BUY; cum-rights TP: MYR4.20): Accumulate at weakness

• What's New? Inari’s share price retraced 20% to MYR2.52 to MYR3.16 from a week ago. At current valuations, Inari trades at 13x CY14 PER and 10x CY15 PER which offers a compelling entry to a high growth stock (projected 3-year earnings CAGR of 61%) backed by 3% yields. Reiterate BUY.
• What’s our view? Inari’s fundamentals remain solid riding on record demand of the iPhone 6/6+, hitting 10m units sold in the first 3 days after its launch on 22^nd Sep in the major countries (US, Australia, Canada, France, Germany, Hong Kong, Japan, Puerto Rico, Singapore and the UK). According to new articles, Apple will also roll out the new iPhone in 36 new markets, including China and South Africa, by the end of Oct.

Alarmingly, pre-orders for the iPhone 6/6+ in China has soared to 20m units vs 9m units during the launch of iPhone 5s. The iPhone 6 and iPhone 6 Plus will be available in 69 countries and territories by the end of October in what Apple is calling its fastest rollout ever.

• How does Inari benefit from this? Inari stands to benefit as a key EMS company (packaging, manufacturing and testing of RF chips) for Avago which is seeing increasing demand for its RF chips driven by (i) a growing 3G/LTE enabled smart devices market (i.e. Apple, Samsung, LG) and (ii) potential increase of RF content in smart devices from the adoption of faster cellular networks (i.e. from LTE to LTE-A). While recent iPhone 6/6+ teardowns only suggest that Avago supplies a combined of 4 system in package (2 SiP for iPhone 6 and 2 SiP for iPhone 6+ from 2 SiP in iPhone 5s), dollar content for these chips are much higher due to increased complexity of the SiP to adopt faster cellular networks.

As a result of the surging demand for the iPhone, Inari is increasing its capacity in its newly acquired fab shell which will see commencement in operation as early as Dec 2014.