Analysts raise earnings forecasts for Inari Amertron

KUALA LUMPUR (May 24): Analysts have raised their earnings forecasts for semiconductor player Inari Amertron Bhd after it posted an improved set of results for the third quarter ended March 31, 2021 (3QFY21).

In a note today, CGS-CIMB analyst Mohd Shanaz Noor Azam raised his earnings per share (EPS) forecasts for the group for FY21-23 by 2%-14%, thanks to higher radio frequency (RF) content underpinned by rising 5G smartphone penetration.

“Industry research group Gartner expects 5G smartphone penetration to increase from 15% in 2020 to 35% in 2021, driven by new 5G network roll-outs in China and emerging markets.

“We gathered that the group is preparing to ramp up assembly and test production capacity for RF chips for new flagship 5G smartphones slated to launch in 2HCY21 (the second half of calendar year 2021), which is expected to start in June 2021.

“Meanwhile, the group has not experienced a material impact on its RF division amid the ongoing wafer shortage; the group indicated that production deliveries remained on schedule,” he said.

According to Mohd Shanaz, investors now have an opportunity to buy more Inari shares since it has fallen about 19% from its year-to-date (YTD) high in early March, in tandem with the KLTEC Index which dropped by 16%.

“Hence, we see the pullback in its share price as a good opportunity to accumulate the stock given the growth in RF content in 5G mobile devices.

“We reiterate our ‘add’ rating on the stock, with an unchanged TP (target price) of RM3.90, despite us lowering our target multiple to 31 times 2022 price-earnings (P/E), +0.5 standard deviation from its three-year mean from 35 times (+1 standard deviation) in view of weaker sentiment in the global tech sector,” he said.

RHB’s Lee Meng Horng, meanwhile, noted that an improvement in the group’s optoelectronic segment performance and contribution from new customers’ onboarding may fuel near-term growth.

“Besides, the recent proposed private placement of up to 10% of the total number of issued shares alluded to a potential imminent sizeable and accretive M&A (merger and acquisition) to expand vertically, which may further propel mid-term growth potential of the company inorganically,” he added.

In tandem with his earnings forecast upgrades of 9%-14% fo FY21-23, thanks to the RF business’ better margins and a lower effective tax rate, Lee raised his TP to RM4.33 from RM4 prior, representing 40 times FY22 P/E or three standard deviations from its five-year mean.

“Inari continues to be our sector top pick as it stands to benefit from mid-term structural growth of the 5G story and growing demand for semiconductor chips,” he said, while maintaining his “buy” call on the stock.

Meanwhile, Hong Leong Investment Bank (HLIB) Research analyst Tan J Young adjusted his FY21 core profit after tax and minority interests (PATAMI) forecast upwards by 3%, while retaining his FY22-23 forecasts.

However, he trimmed his TP to RM3.81 from RM3.88 to account for dilution from its employee share option scheme (ESOS) despite retaining his “buy” rating.

“Our TP is pegged at unchanged 35 times CY22 FD EPS. We strongly believe that the iPhone 12 super cycle is likely to boost Inari back to its glory days, while its opto division is expected to improve with more customer diversification and partnerships,” he said.

To recap, Inari’s net profit for 3QFY21 jumped 33.72% to RM81.95 million, from RM35.06 million a year earlier, on a higher revenue and recognition of deferred tax assets.

The semiconductor maker said quarterly revenue increased 41.38% to RM342.93 million, from RM242.57 million previously, largely due to a higher contribution from its RF business segment.

The group declared a third interim dividend of 2.2 sen per share, and a special dividend of 1.8 sen per share, to be paid on July 8.

At 9.58am, Inari was seven sen or 2.33% higher at RM3.07, with a market capitalisation of RM10.03 billion.

Source: TheEdgeMarkets