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Wednesday, July 25, 2018

AmInvest Research strong earnings growth for Inari

Wednesday, 25 Jul 20189:05 AM MYT

KUALA LUMPUR: AmInvestment Bank Research expects Inari Amertron to register a robust earnings compounded annual growth rate (CAGR) of 31% from FY17 to FY20F.

It said on Wednesday that underpinning the growth would be three core pillars.

he first is radio frequency (RF), which benefits from the transition to 5G and rising content per device.

The second are laser devices, which are boosted by increasing biometric and augmented reality (AR) applications in smartphones.

The third is LED, which rides on rising demand for high-resolution billboards in shopping malls.

“We maintain our Buy recommendation on Inari with a higher fair value of RM2.61/share (vs. RM2.50 previously). Our valuation is pegged to a CY19F PE of 20 times, in line with its three-year average,” it said.

AmInvest Research revised its FY19F and FY20F earnings marginally upwards by 4.1% and 4.2% respectively after factoring in a slightly higher utilisation rate for its RF segment.

It believes 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.

The first is fine-pitch LED (less than 2mm pixel pitch) used for billboards and other public display panels; and the second is 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 six to nine months’ time. For now, raw materials are being consigned to Inari for processing. After three to six 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,” it said.

AmInvest Research also said that management also reaffirmed plans to consolidate operations to improve efficiency.

To this end, the group is relocating its Philippine operations in Paranaque (PQ) to existing plants in Clark Field. The move will allow its wholly-owned Amertron Inc to reap a fair amount of cost savings as Clark Field plants are in the Clark Freeport Zone, which entitles investors to certain tax incentives.

In addition, the group also intends to relocate operations in its P8 plant to P13 as both are producing RF components.

Collectively, AmInvest Research believes the group will be able to save labour cost and rental expenses of more than RM500,000 a month (c:2% of FY19F earnings) from the exercise.

Inari is also building a 640,000 sq ft factory in Batu Kawan. The first phase, comprising a 200,000 sq ft factory is set to be completed by September-October 2018.

This new plant is to cater for additional jobs from its German optoelectronics customer, as well as potential new jobs from prospective customers.

“Note that we have not factored in any earnings contribution from its Batu Kawan facility into our profit forecasts,” it said.


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