2QFY22: Plain sailing
Results above expectations; maintain BUY
2QFY22 core NP of MYR113m was above expectations, as 1HFY22 core NP of MYR226m came in at 56%/58% of our/the street’s FY22E estimates. We have raised our FY22-24E earnings assumptions by 17%/23%/24%, but lower our valuation peg to 35x FY23E PER, at +1.5SD to the LT mean (from 44x
at +2.5SD), to account for the accelerated inflation-induced rate increase cycle. Imputing for both, our TP is nudged marginally higher to MYR4.77 (+1%). Inari remains our top OSAT pick, underpinned by its RF division’s strength/robust volume loading and the potential onboarding of new customers as industry supply is likely to remain tight, at least until 1H23.
2QFY22 results takeaways
Excluding EIs of MYR6m, 2QFY22 core NP of MYR113m saw 21% YoY growth but was flat QoQ (+1%). Despite strong contribution from the RF division (63% of total turnover or c.MYR265m), growth was muted (+2%/1% YoY/QoQ) owing to the absence of the 2Q/3Q (Inari’s 4Q/1Q) seasonal strength that usually precedes the customary year-end new flagship model launches. However, the OPTO division made up for shortfall in YoY RF growth and came in at c.MYR126m (+39% YoY), owing to higher volume loading from existing customers. On a QoQ basis, OPTO division revenues declined 9% as a result of acute component shortages affecting its smaller clients, but mgmt is cautiously optimistic of the issue being resolved.
Revised earnings estimates for FY22-24
Premised on Inari’s strong showing in 1HFY22, we have nudged our FY22- 24E estimates higher by 17%/23%/24% on the back of: (i) Improving gross margins at 29%/30%/30% (from c.26% previously) per mgmt’s guidance and in-line with the last 4 quarters’ average of 30%, (ii) improved blended RF division utilisation of 93% for FY22-24 (from 85%), and (iii) an increase in assembly/testing capacity from the 2 newly-added SiP lines in 2QFY22.
China to be the next growth driver?
Inari is hopeful of benefitting from the Biden administration’s doubling down of Trump era anti-Sino policies and has already received enquiries from China-based MNCs to transfer their production bases to its facilities in MY and PH. The “China exodus” is also a blessing as it creates a vacuum in the local market that Inari is seeking to capitalise on via its SMIC-backed JV that will focus exclusively on China-based customers. With a net cash position of c.MYR1.9b (45 sen/share), it is well-positioned to leverage on
further capacity expansion/M&A opportunities during the current upcycle.