Still our best pick in the sector
We believe that earnings have bottomed in 3QFY16 and should pick up in 4QFY16 on (i) higher RF shipment approaching a major smartphone launch in Sep 2016 and (ii) potential reversal of forex losses due to a weaker MYR. Alongside RF, stronger contribution from the other divisions (i.e. ISK, ISL, IIS) would take Inari back to a growth trajectory. With positive long-term prospects riding on higher adoption of 3G/LTE/LTE-A, we reiterate BUY on Inari MYR3.20 TP unchanged (15x CY17 EPS). Minor tweak to earnings (<±1%) having raised DPR to 45%-50% from 40%.
Recovery in motion
Inari remains confident to grow its revenue beyond MYR1b in FY16 having seen a pick-up in its shipment to Broadcom beginning 4QFY6/16; in line a monthly revenue pick-up recently reported by WIN Semiconductor (3105 TT, Not-rated), Broadcom’s supplier for the RF power amplifier. Also, should USD/MYR sustain at current rate of 4.08 (vs 3.90 as at end-Mar 2016), Inari should be able to reverse some of the forex translation losses incurred in 3QFY6/16 (MYR7m), boosting earnings QoQ.
Focus on the long-term prospects
Higher adoption of 3G/LTE globally (<30 20="" a="" address="" aggregation="" aims="" alongside="" at="" bands="" br="" brands="" broadcom="" cagr="" carrier="" chinese="" clients.="" complexity="" consumption.="" content="" currently="" data="" dependency="" expects="" few="" frequency="" growth="" increasing="" into="" its="" module="" next="" not-rated="" of="" on="" over="" penetration="" possibility="" products="" raises="" rapid="" reduce="" rf="" s="" should="" smartphone="" the="" this="" to="" top="" two="" upcoming="" us="" with="" years.="">
Compelling risk-to-reward; Reiterate BUY
Inari’s share price has retraced by 30% from its peak (MYR3.80 on 30th Dec 2015) following the news of channel inventory rationalisation by a major smartphone player. As volume loading resumes its norm to meet the new launches in 2H16, this allays the concerns of a further shipment deferment by the components maker. Current price offers a decent entry point at 14x CY16 ex-cash PER (MYR211 net cash as at end-Mar 2016).
Source: Maybank Research - 20 May 2016
INARI (0166) - Inari Amertron - Set your eyes ahead
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