Monday, August 24, 2015

Post briefing - Inari Amertron (INRI MK; BUY; TP: MYR4.35) & ViTrox Corp (VITRO MK; BUY; TP: MYR3.65)


Post briefing: Inari Amertron (INRI MK; BUY; TP: MYR4.35) - Shifting up the gear
  • No slowdown just yet. Wafer constraint at Avago’s end to ease in 2H15, leading to significantly higher orders (~+30% HoH) for Inari’s RF division in 1HFY6/16. Along with higher ASPs, these will sustain Inari’s quarterly growth momentum going forward.
  • Open for M&A. Amid market uncertainties, management believes it is timely to hunt for another synergistic potential M&A (~USD50m) to enhance its technology (i.e. wafer-level related processing).
  • Tweaked our FY16-18 forecasts up by 3-5% on higher ASPs from weaker MYR partially offset by higher operating costs. Inari is a beneficiary of the stronger USD against the MYR (90%/70% of its revenue/COGS is in USD). There is further upside in our earnings forecasts - USD/MYR currently trades at USD1/MYR4.17, 8% above our base assumption MYR3.85. Valuations are undemanding at 10x CY16 ex-cash PER, reiterate BUY.

Post briefing: ViTrox Corporation (VITRO MK; BUY; TP: MYR3.65) - Growth albeit smaller quantum
  • Improving book-to-bill ratio (1.1x) on substantial order backlog (MYR24m) for 3Q15. Management will be making more inroads to supply equipment, especially with  the low-cost 3D AOI and mini AXI (to be launched in 4Q15), to the China market which will see injection of CNY1t (MYR655b) into its electronics industry.
  • Cut FY15/16/17 earnings by 14%/6%/6% on weaker MVS & ABI sales but partially offset by higher ASPs from weaker MYR.
  • Beneficiary of strong USD. Lower unit sales in the near-term were bolstered by higher ASPs as we assume USD1/MYR3.85 average from USD1/MYR3.60 previously. Maintain BUY for future growth prospects and undemanding valuations at 11x FY16 PER.

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