INARI (0166) - Inari Amertron - Investing in New Technologies
Inari hosted an analyst briefing following the release of its 2HFY17 results. RF revenues are expected to be flattish this year, as wafer processing revenues were affected by a shift from 6-inch to 8-inch wafers. Current RF tester capacity stands at 700 testers, with an additional 80 testers to be added in 2017. Housed at P21, Inari Optical Technology (IOT) is progressing well, having been qualified in early February 2017. Driven by Inari Integrated Systems (IIS) and IOT, we expect increased contributions from P21 in the coming quarters. Nonetheless, risks to our earnings are delay in its expansion plans and/or slow adoption of new technologies. We leave our TP unchanged at RM2.15/share, but downgrade our recommendation to HOLD.
Expecting Flat Year for RF
RF revenues are anticipated to be flattish from the year before. The group has been impacted by the shift from 6-inch to 8-inch wafers. Due to the ability of the larger wafer to store 1.7x more dies and a dissimilar increase in ASPs required to process them, wafer processing revenue were impacted. In terms of testers, the group currently has a capacity of 700 RF testers. Catering for increased demand, additional space has been freed up at P13 to cater for an additional 80 testers. However, plans for P13B are still on the cards, given expectations of another big ramp up by its key customer in nine months.
Iris Scanning
IOT has progressed well, with its line being qualified in early February. It is ready for production, with the business involved in the packaging and testing of infrared LED. This will be implemented within smartphones to provide iris scanning capabilities. Starting out with a capacity of 5mn units/month, this could eventually be ramped up to 20mn units/month. This, however, will be dependent upon successful adoption of the new technology. The feature has been built into an upcoming popular smartphone model, which will provide an indication of market acceptance of the technology.
Valuation
We leave our TP for Inari unchanged at RM2.05/share – based on a PE of 18x and CY17 EPS of 11.4sen. Housing IIS and IOT, we expect to see increased contributions from P21 in the coming quarters. Nonetheless, risks to earnings are delay to expansion plans and/or slow adoption of new technologies. Following the recent run in its share price, we downgrade our recommendation on the stock to HOLD from BUY.
Source: TA Research - 27 Feb 2017
INARI (0166) - Inari Amertron - Investing in New Technologies
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