FW: Results: Inari Amertron (BUY; TP: MYR2.42) - Still our Top Pick in the sector

 

 

Inari Amertron (INRI MK; BUY; TP: MYR2.42) - Still our Top Pick in the sector

 

• Earnings ahead of consensus but slightly below ours. Inari’s 9MFY6/18 core net profit of MYR232m (+48% YoY) beats consensus’ expectations at 84% of FY18E but was slightly below ours at 72%, with the slight shortfall from lower-than-expected volume loading from IR LED shipment and USDMYR forex volatility. For that, we lower our FY18-20E earnings by 7%-9%. Together with the recent 1-for-2 bonus issue, our TP is now adjusted to MYR2.42 (from MYR4.20), pegged to an unchanged 20x CY19 EPS; this represents a 10% premium to our target PERs for tech companies within our coverage. Maintain BUY.
• A minor setback. 3QFY18’s -31% QoQ weaker core earnings to MYR64m stems from several reasons. Firstly, 3Q is seasonally weaker QoQ due to softer volume loading for the RF division following inventory build-up by its end client in 2Q. In 3QFY18, Inari also saw slightly lower volume for its IR LED components while the overall operation was also affected by a stronger MYR; on average, USDMYR fell 6% QoQ. All these contributed to a lower core operating margin of 21.9% (-5.2ppts QoQ). Nonetheless, strong cash flow generation (net cash of MYR497m as at end 3QFY18) enabled Inari to declare a higher interim DPS of 1.6sen. 9MFY18 DPS of 4.8sen (+40% YoY) is on track to meet our FY18 estimates.
• New growth angle from Batu Kawan expansion. With positive customer developments on hand (i.e Phase 1 completion of OSRAM’s EUR1b wafer fab plant in Kulim), we have no qualms that Inari would secure new contracts for its own new 600k sq ft Batu Kawan plant (a 60% floor space expansion). Phase 1 (~220k sq ft) is expected to be completed by Sep 2018. Given the speed and size of this expansion, we do not rule out new product qualification by a new or an existing client in the near term, which could enable sustained growth in the next 2-3 years. We have yet to impute any contract wins for the new plant.
• Premium valuations justified by track record. With 7 consecutive years of growth in hand (including FY18E), Inari’s premium valuations as the sector bellwether is well justified. We also like Inari for its solid track record in generating new growth angles consistently (i.e. new product qualification by existing and new clients).

 

 

Ivan Yap | Analyst, Equity Research

Maybank Investment Bank Berhad (15938-H)
7^th Floor, Tower C, Dataran Maybank, 1, Jalan Maarof, 59000, Kuala Lumpur, Malaysia

Tel: +603 2297 8612 | Fax: +603 2284 2137
Email: ivan.yap@maybank-ib.com

 

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