STOCK FOCUS OF THE DAY
Inari Amertron: To see higher revenue from RF BUY
We maintain our BUY recommendation on Inari Amertron (Inari) with a higher fair value of RM2.61/share (vs. RM2.50 previously). Our valuation is pegged to a CY19F PE of 20x, in line with its 3-year average. We have revised our FY19F and FY20F earnings marginally upwards by 4.1% and 4.2% respectively after factoring in a slightly higher utilisation rate for its radio frequency (RF) segment. We believe that the segment will continue to grow sturdily on the back of rising RF content in smartphones, which is needed to facilitate the transition from 4G LTE to 5G.
Aside from that, Inari is working with its German customer to develop several new products – (1) fine-pitch LED (<2mm pixel pitch) used for billboards and other public display panels; and (2) health sensor as well as vertical-cavity surface-emitting laser (VCSEL) components for both 2D and 3D sensing applications.
We believe meaningful earnings contributions from the new products will start showing in 6–9 months’ time. For now, raw materials are being consigned to Inari for processing. After 3–6 months of observational period, if volume picks up, Inari would start purchasing raw materials for its customer. This allows the group to book higher revenue due to a higher bill of materials (BOM). The new products, if fully ramped up, can potentially generate more revenue than its bread-and-butter RF business.
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