FW: Results: Inari Amertron (BUY; TP: MYR2.98) - Unchartered territory

 

 

Inari Amertron (INRI MK; BUY; TP: MYR2.98) - Unchartered territory

 

• Within our expectations but beats consensus’. On the back of strong volume loading in the RF division, 1QFY6/18 revenue and core net profit hit another new high to beat consensus’ expectations - 1QFY18 core earnings made up 26%/28% of our/street’s full-year forecasts. Our earnings forecasts, MYR2.98 TP (20x CY18 PER – 10% premium to our target PER peg for Malaysian listed technology companies) and BUY rating are unchanged pending briefing today.
• From glory to glory. Inari’s quarterly revenue broke another record, hitting MYR373m (+8% QoQ, +33% YoY) in 1QFY18, underpinned by (i) seasonal strength in RF demand and also (ii) slightly better contribution from the other key products (i.e. IR LED, multi-signal traffic controller, fibre-chip fabrication). Alongside significant expansion in core operating margins (+4.7/+4.2ppts QoQ/YoY to 21.3%) coming from (i) stronger revenue and (ii) the insourcing arrangement with its key clients (removal of the low-margin material procurement portion), core earnings surged 48% QoQ/ 61% YoY to MYR74m which excluded provisions, impairments and write downs; there were also higher ESOS charges of MYR3.0m and forex losses of MYR3.4m this quarter - taking these out as well would see the adjusted net profit hitting MYR80m or 28%/30% of our and consensus FY18 forecasts - expect consensus upgrades.  

Solid earnings and cash flow generation (net cash of MYR433m as at end 1QFY18) enabled Inari to double its first interim DPS to 2.3sen (ex date: 13 Dec 2017) from 1.2sen (after accounted for 1-for-1 bonus issue) in 1QFY17, representing a DPR of 67% - in line.

• Further growth on the back of rising capex? Growth visibility remains compelling with 1QFY18 capex still climbing QoQ to MYR67m, even after hitting a high of MYR50m in 4QFY17 – indicator of a further production ramp up in the upcoming quarters. With a strong balance sheet and a solid track record, we do not rule out the possibility of new product qualification by a new or an existing client in the near term, enabling sustained growth in the next 2-3 years.

 

 

 

 

 

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