Inari Amertron (INRI MK; BUY; TP: MYR2.18) - Beats street’s expectations

Inari Amertron (INRI MK; BUY; TP: MYR2.18) - Beats street’s expectations

• Expect earnings upgrade by the street. Inari’s 1HFY6/17 core earnings came in marginally ahead at 51% of our street-high core net profit forecast for FY17; 57% of street’s. Pending an analyst briefing today, we keep our FY17 net profit forecast unchanged by lift our FY18/19 net profit forecast by 5%/9% to account for higher USD/MYR forex of 4.20 (from 4.05). Rolling forward our valuations to CY18 on a lower PER peg of 16.5x (from 17.5x; +1SD) on fully-diluted EPS of 13.1sen, we derive a TP of MYR2.18 (+8 sen). Maintain BUY on Inari.
• IR LED for iris scanners. Introduction of higher screen ratio (i.e. bezelless display in Xiaomi Mix) in the next generation smartphones (i.e. Xiaomi Mix) could see the physical home button/fingerprint sensor replaced by an iris scanner, a viable alternative of biometric security. Against this backdrop, we are positive on Inari’s venture into IR LED, a necessary component for the iris scanner, which could well offer another long-term catalyst to the stock.

Globetronics Technology (GTB MK; HOLD; TP: MYR4.05) – 2016 results within expectations

• 2017 will be a tale of two halves. FY16 net profit closed at a 5-year low following a plunge in demand across all geographical segments, the key culprit being the sensor division whereby Globetronics’ proximity sensor failed to feature in 2016’s North American premium smartphone. We expect suppressed 2Q/3Q17 earnings on weak volumes for the existing sensors and high depreciation from capex for the new sensors (mass production from mid-2Q17), but with a strong rebound in 2H as orders from its sensor client come through. No changes to our earnings forecasts; valuations are fair (15x CY18 EPS) for now. Maintain HOLD on unchanged TP of MYR4.05, pegged to an unchanged 14x CY18 EPS.
• Improving sentiment for sensor division. The completion of ams AG’s (AMS SW, Not-rated) takeover of Globetronics’ sensor customer revealed substantial revenue expectation for the acquired entity at USD300m in 2017 vs USD90m previously based on a 12-month run-rate. This is underpinned by USD250m in capex in 2016/17. Correspondingly, we expect Globetronics to benefit from this too, as it remains the key OSAT player for the supply of new sensors (i.e. light sensor) for 2017’s launch of premium smart devices.

PECCA Group (PECCA MK; BUY; TP: MYR1.95) - No surprises in 2QFY167

• Stronger QoQ results led by OEM division. 2QFY6/17 revenue and earnings were lifted by higher overall car production by its key customers (i.e. Perodua, Toyota & Nissan) - within expectations. Nonetheless, we cut FY18/19 net profit forecast by 15% each as we raise our USD/MYR forex assumption to 4.20 (from 4.05). Rolling forward our valuations to CY18 on an unchanged 14.5x PER, our MYR1.95 TP is unchanged. Ex-cash (end-Dec 2016 net cash: MYR93m), valuations remain undemanding at 9x CY17 PER; BUY.