Prelude to a new job win?
Inari’s latest plant acquisition signals an imminent job win, possibly from its biggest client, Broadcom Ltd (previously Avago Technologies). Our forecasts are unchanged pending results announcement next week. Our TP (based on 17x CY17 PER) is adjusted to MYR4.15 (from MYR5.35) to reflect the recently concluded 1-for-4 bonus issue exercise (including warrants dilution). Reiterate BUY; Inari is our Top Pick in the sector.
Positive on this acquisition
Wholly-owned Inari Technology has entered into a Sale and Purchase Agreement (SPA) with Unetsys for the acquisition of a 5.25-acre leasehold industrial land together with a factory building in Bayan Lepas Free Trade Zone, Pulau Pinang, for a total of MYR22.8m cash; internally generated (MYR206m net cash as at end-1QFY6/16).
This new plant, measuring 198k sq ft, will overtake Inari’s existing P-13 plant (166k sq ft) as its largest single facility to-date and is expected to contribute positively in FY6/17 (~6-9 months setup time). Pending further clarity from management, we keep our forecasts unchanged.
Expect 2QFY6/16 to be strong
Inari’s 2QFY6/16 results, due out on 23 Feb, are likely to meet expectations, at MYR45m-50m net profit (-2%-+9% QoQ, +10%-22% YoY) on the back of strong orders and positive USD exposure (USD/MYR average: 4.28 in 2QFY6/16 vs 4.05 in 1QFY6/16).
Promising growth prospects; inexpensive valuations
Together with its unutilised 5.05-acre land in Batu Kawan, Inari is able to tender for new jobs (i.e. backend semiconductor jobs for Osram’s EUR1b chip plant investment in Kulim, Broadcom Ltd – merged entity of Avago and Broadcom), ensuring its future growth and diversifying its portfolio. Recent weakness in share price (-14% from peak of MYR3.82 on 30 Dec 2015), due to news of slower growth in smartphone sales and a volatile MYR, presents a decent entry opportunity. Ex-net cash, Inari trades at 13.6x CY16 PER, offering a 27% upside to our TP.
Source: Maybank Research - 19 Feb 2016
http://klse.i3investor.com/blogs/kltrader/91504.jsp
