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Thursday, May 24, 2018

Inari-Amertron to grow LED, fibre and sensor businesses

Thursday, 24 May 20188:18 AM MYT

KUALA LUMPUR: Inari-Amertron is targeting to grow its light emitting diode (LED), fibre and sensor product portfolio to offset the softness in radio frequency (RF) demand due to sluggish near-term smartphone outlook, says CIMB Equities Research.

“We are excited to learn the group is looking to add new potential customers for its P34 plant in Batu Kawan as this will help to address its customer concentration risk,” it said on Thursday.

CIMB Research said it was maintaining Hold with an unchanged RM2.27 target price still based on 20 times CY19F P/E.

To recap, the research house attended Inari-Amertron’s 3QFY6/18 results briefing together with 50 analysts and fund managers.

However, the group expects minimal pick-up in RF volume in 4QFY6/18 due to sluggish demand in the smartphone market.

CIMB Research said the group highlighted the phase two expansion at P13 plant was completed this month.

“We understand the group is looking to transfer some of the equipment from P8 to P13 as part of its portfolio rationalisation plan to support its RF division,” it said.

Inari’s RF tester capacity remains at 970 units as of May 2018. Following the latest expansion at P13, Inari could add another 250 RF testers or additional 25% production capacity.

“Apart from that, we learnt that the construction of its P34 plant in Batu Kawan is on track and the first building, with a total production area of 220,000 sq ft, is expected to be completed in September 2018,” it said.

To recap, P34 plant will have three production plants with a total production area of 600,000 sq ft.

The first building will be mainly to support a new LED business portfolio for its existing customer, Osram.

“We are excited to learn that Inari is looking to add new potential customers for P34 plant as part of the group’s strategy to diversify its customer risk. This will help to address investors’ concerns over high customer concentration risk towards Broadcom.

“Meanwhile, we are cautious on its iris scanner performance due to lower volume loading in the quarter,” it said.

Inari indicated the total shipment fell to five million to six million units a month in 3QFY18 vs. seven million to eight million units/month in 2QFY18.

Nonetheless, the group is in the midst of qualification for vertical cavity surface emitting laser (VCSEL) application for mobile devices.

Moreover, Inari is also in the midst of qualification for a new mini LED line and health sensor for wearable applications. Overall, the group expects the new product portfolio to take up the available capacity for iris scanner.

“In addition, the consolidation of Amertron’s operation in the Philippines is still ongoing. The group expects the transfer process to be completed in June 2018,” it said.

CIMB Research is maintaining its Hold and RM2.27 target price, still based on 20 times CY19F P/E (30% premium over the local sector target P/E of 15.4 times).

Key downside risks to its Hold call are the strengthening of the ringgit against the US$, slowdown in RF demand and lower contributions from the new products portfolio.

However, the depreciation in the ringgit vs. the US$, better-than-expected RF demand and higher earnings from new divisions are key upside risks to its call.


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