Inari Amertron (INRI MK; BUY; TP: MYR4.05): Proxy to Avago's growth

Newsflash on Avago’s latest acquisition.

Inari Amertron (INRI MK; BUY; TP: MYR4.05): Proxy to Avago's growth

• The biggest semiconductor consolidation to date. Avago Technologies (AVGO US, Not-rated) has announced its latest acquisition of wireless chipmaker Broadcom Corp (BRCM US, Not-rated) for USD37b (USD17b in cash and USD20b in stock) – the biggest transaction in the USD300b technology industry. The purchase of Broadcom, the biggest maker of WiFi chips for short range connection in mobile devices, will create the world’s sixth-largest chipmaker globally by revenue.
• No short-term accretion to Inari’s earnings just yet, but positive sentiment. As one of Avago’s key EMS company for its wireless division with established working relationship and incoming capacity (manufacturing space expansion in (i) Clark, Philippines, (ii) P13-B Penang, Malaysia and (iii) 5-acre Batu Kawan expansion) to boot, we continue to see potential for Inari to growth its earnings base from potentially more outsourcing contract from cost-conscious Avago.
• 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 of MYR4.05 (16x CY16 PER).