Results: Inari Amertron (INRI MK; BUY; TP: MYR4.05) - Small blip, as expected

We have results note on Inari and some comments on news.

Inari Amertron (INRI MK; BUY; TP: MYR4.05): Small blip, as expected

• Within our expectations but beat street’s forecasts. 3QFY6/15 core net profit of MYR39m (-6% QoQ, +43% YoY) took 9MFY6/15 core earnings to MYR114m (+57% YoY), accounting for 73%/80% of our and consensus full-year forecasts. QoQ weakness was largely due to higher opex stemming from start-up losses at its new plant, P13, with no increment to revenue. This is a small blip to Inari’s previously unbroken streak of QoQ net profit growth over the previous 12 quarters.

Inari has declared an interim DPS of 2.1sen (to go ex- on 3 June), bringing 9MFY6/15 DPS to 6.6sen (vs FY6/14 DPS of 6.8sen).

• Forecasts unchanged, expect better earnings 4QFY6/15 onwards, aided by stronger orders from Avago for the RF division to meet the demands of the major smartphone makers. Also, with its newly installed capacity, P13, we expect earnings to scale greater heights, riding on the wave of more outsourcing contracts (including potential new products) from Avago Technologies group (AVGO US, Not-Rated).
• 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 22% upside to TP.

Comments on news:

MY Automotive (NEUTRAL): Malaysia to be BAIC’s Southeast Asian hub for electric cars. According to NST, Beijing Auto International Cooperation (BAIC), one of the world’s leading electric vehicle producers, wants to make Malaysia as the hub for its electric cars for the Southeast Asian market and has signed a cooperation agreement with its Malaysian joint venture partner, Amber Dual Sdn Bhd. The first batch of production will take place in July next year at a manufacturing plant to be built in Gurun, Kedah.

While the electric car segment remains small in our view, we are slightly positive on  this investment which could potentially take Malaysia’s automotive supply chain to the next level given more complicated technology involved. Our analysts, KL Lo (kllo@kimeng.com.hk) and Ben Ho (benjaminho@kimeng.com.hk), from HK office covers BAIC.

MY Semiconductor (OVERWEIGHT): MYR1b re-investment by Jabil to create 2,500 jobs in Penang. Jabil Circuit, a global provider of design, engineering manufacturing and supply chain solutions, has secured approval from the Penang State government in Malaysia to purchase 20 acres of land at the Batu Kawan Industrial Park for MYR30m to support expansion plans over the next 5 years. This agreement also entitles Jabil to purchase a further 20 acres of land in the future. Construction on the new facilities is expected to start in 2H16.

Jabil Circuit currently has over 800,000 sq ft of manufacturing floor space, three manufacturing, two shared services sites and about 5,200 employees in Penang, with more than USD250m invested. We are positive on this development as it will be a boost to Penang’s FDI which will enhance the supply chain and skill development of the industry.

MBM Resources (MBM MK; BUY; TP: MYR4.20): Federal Auto to build MYR20m CKD plant. Wholly-owned Federal Auto has obtained regulatory approval to set up a CKD plant to assemble Iveco vehicles in Malaysia. While we are positive on MBM diversifying its earnings base, we think that the initial investment of MYR20m is small compared to MBM’s previous shared investment for Hino’s manufacturing plant of MYR140m.  We make no change to our earnings forecast pending further clarity from the management. MBM remains our Top Pick in the MY automotive space for its 22.6% associate stake in Perodua, which has seen much growth in terms of vehicle sales as of late since the launch of the A-segment Axia.