Inari Amertron (INRI MK; BUY; TP: MYR3.80) - A decent kick-off

Inari Amertron (INRI MK; BUY; TP: MYR3.80) - A decent kick-off

• No surprises. Softer sequential core earnings (-4% QoQ) despite a 10% QoQ improvement in 1QFY6/17 revenue were within expectations, having accounted for higher depreciation and start-up costs at Inari’s new P-21 and CK2 plants. A higher interim/special dividend of 2.3sen/0.7sen (vs 2.3sen/0.5sen in 1QFY6/16), to go ex on 13 Dec 2016, was also in line.

Going forward, 2QFY6/17 earnings could potentially be boosted by favourable USD/MYR forex and operations turnaround at the P-21 plant. Pending an analyst briefing today, we keep our earnings forecasts unchanged but see upside bias in terms of our FY17-19 USD/MYR estimate which stands at 3.90 currently.

• Opportunities favour the ready. With excess capacity now in its P-21 and CK2 plants, we believe that Inari is in a good position to capture new outsourcing jobs from new/existing customers.  While utilisation of the P-21 plant remains low (<20%) for now, we expect this new capacity to be quickly taken up over the next few quarters. Inari’s valuations are undemanding (14x ex-cash CY17 PER), considering its growth (16% 3-year earnings CAGR). Maintain BUY with unchanged MYR3.80 TP, pegged at 17.5x CY17 EPS.