We
have a post briefing note on Inari.
Inari
Amertron (INRI MK; BUY; TP: MYR4.05): Staging for an even better FY16
- Future expansion can be funded internally. In view of more potential outsourcing from Avago, Inari may undertake another expansion (to be called P13-B; costing ~MYR76m for building and equipment) by extending its existing P13, to be renamed P13-A. P13-B will have a manufacturing space of about 223k sq ft; 34% bigger than P13-A’s 166k. Additionally, Inari has also committed to spend ~MYR38m over the next 1.5 years to extend its current facility in Clark (+~90k sq ft of manufacturing space), the Philippines, to cater to Avago’s demand for fibre-optics related products. This is expected to contribute up to another MYR90m to Inari’s group revenue upon full-fledged production.
Inari has sufficient internal
funding for these expansions with a net cash position of MYR198m as at end-Mar
2015.
- Better earnings from RF division to kick start from 4QFY6/15 onwards. Operationally, management expects the wafer constraint at Avago’s end to ease in 2H15, leading to significantly higher orders in 2QFY6/16 for Inari’s RF division.
- No slowdown in FY6/16. On the assumption of 85% utilisation at P13-A, management foresees a conservative 25% YoY growth in revenue for the RF division to MYR563m in FY6/16, in line with our estimates. Meanwhile, overall group revenue is expected to hit MYR1.1b in FY6/16; this excludes contribution from (i) a new product outsourcing contract, (ii) P13-B, and (iii) Clark plant extension.
- Inexpensive valuation at 13x CY16 PER (domestic peers’ average is 14x CY16 PER) for a growth stock (23% 3-year earnings CAGR) with a clean BS. Reiterate BUY for 19% upside to TP.
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