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Saturday, February 27, 2016

Inari Amertron - Moving beyond comfort zone

Inari Amertron - Moving beyond comfort zone

Author: kltrader | Publish date: Thu, 25 Feb 2016, 12:48 PM

New pursuits to diversify revenue base

Management is more focused on its growth engines for FY17 and guided that the current soft patch affecting its RF division is temporary. While no specific details were divulged on its recent plant acquisition, we are positive on this purchase. Against these backdrops, we adjust our FY16/17/18 forecasts by -10%/+3%/+5%. Correspondingly, our TP is marginally raised to MYR4.30 (+4%) on unchanged 17x CY17 PER. BUY.
Brace for potential 15-20% lower profits in 3QFY16

Post yesterday‘s analyst briefing, we cut our FY16 net profit forecast by 10% to account for Inari’s RF division’s deferment in shipment by its client. Nonetheless, shipment should resume in 4QFY16 in preparation of a major smartphone launch in Sep 2016. We understand that up to 25% of end-1HFY16’s inventories are finished products available to ship out. Beyond FY16, we remain excited over Inari’s growth potential anchored on potential new ventures with its newly-acquired P-21 plant. As such, we tweak our FY17/18 net profit forecasts up by 3%/5%, having imputed job wins which offset softer RF revenue assuming a lower plant utilisation rate of 85% (from 90%). We also raised our FY16/17/18 capex assumption to MYR150m/200m/100m from MYR110m/100m/50m.
Expect P-21 to contribute in FY17 onwards

Based on track records, Inari was able to commence production in its new plants within 9-12 months, on a gradual basis. Management expects to start populating parts of P-21 with some equipment within the next 3 months to begin test production. While no specific client details and revenue targets were disclosed, we conservatively impute job wins worth MYR150m/300m into our FY17/18 earnings forecasts.
More room to grow

Inari’s unutilized 5.05-acre land in Batu Kawan Industrial Park offers further growth opportunities (i.e. backend semiconductor jobs for Osram’s EUR1b investment in Kulim) which has not been imputed into our earnings forecasts. BUY Inari for its growth potential (20% 3-year earnings CAGR) and inexpensive valuations (0.8x PEG).

Source: Maybank Research - 25 Feb 2016

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