We place our fair value and forecasts for Inari Amertron
(Inari) under review pending further clarification by management from the
analyst briefing later today. Inari’s FY16 core net profit, excluding a RM7mil
one-off charge on inventory write-downs, was largely in line with our and
consensus’ expectations at RM156mil (+5.9% YoY).
The group’s 4QFY16 revenue rose 17% QoQ to RM255mil, which
caused core net profit to double to RM47mil. The stronger revenue improvement
stemmed from higher trading volumes in the radio frequency (RF) and chip fibre
volume loading in tandem with the launch of Snapdragon 820 earlier this year.
Qualcomm is believed to have overcome the problems in its previous processor
Snapdragon 810 vis-à-vis overheating and poor battery performance with the new
Snapdragon 820. As a result, smartphone enthusiasts regard 2016 as a good time
to change their phones. Many flagship smartphones such as LG G5, HTC10, and a
few existing Samsung models, utilise Qualcomm’s new Snapdragon 820 (HTC, LG and
Samsung are among the significant customers of Avago). Moving forward, we
expect sales to continue its growth trajectory at modest pace driven by
capacity expansion at its P21 plant.
Given Inari’s track record as a high-volume Outsource
Semiconductor Assembly & Test (OSAT) service provider, we expect Inari to
secure new service contracts from Broadcom. In the medium term, its close partnership
with Osram is also expected to generate new service contracts for Inari’s
upcoming Batu Kawan plant. In comparison, our projections are consistent with
Gartner’s view that the smartphone industry will experience single-digit growth
until 2020. During the quarter, Inari proposed a slightly lower fourth interim
dividend of 2.2sen/share (Q4FY15: 2.3sen), bringing its YTD DPS to a lower
8.4sen/share (FY15: 8.9sen). Given the higher share base and lower net profit,
this translates into a dividend payout of 57% vs. 53% in FY15. The stock
currently trades at CY17F PER of 15x, more than 1sd above its 5-year historical
average of 108x, while dividend yields are fair at 3%. MPI and Unisem are
currently trading at a 1-year forward PER of 10.5x and 12.2x respectively.
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