Introducing expanded ESG tear sheet; maintain BUY
We have trimmed our FY22-23 EPS estimates by 9%/8% on the back of 2H
seasonality weakness and the potential fallout from China’s “Covid Zero”
lockdown policy. We maintain the BUY call but further lower our valuation
peg to 32x FY23E PER, at +1SD to the LT mean (from 35x at +1.5SD), to
account for the accelerated inflation-induced rate increase cycle; our new
TP is MYR4 (-16%). We have also introduced an expanded ESG tear sheet
(see Pg. 3) for Inari and assigned it an above average overall score of 70,
based on its aggregated quantitative/qualitative/target-based metrics.
Trimming FY22-23 earnings estimates
We revise our FY22-23 earnings estimates by 9%/8% on account of: (i) lower
seasonality in 2HFY22 as smartphone customers hold back on purchases in
anticipation of the new flagship models to be launched by its key endcustomer in late Sep 2022 and (ii) the potentially adverse impact of
China’s lockdown of the Shanghai metropolis and its surrounding areas in
late March to contain the country’s largest Covid outbreak to-date.
Extended Shanghai lockdown potentially adverse
The effect of China’s lockdown is two-fold as the draconian measures
imposed is (i) likely to have dented consumer confidence (the key endcustomer derived c.21% of its turnover last quarter from Greater China,
its fastest growing revenue demographic globally) and (ii) forced the key
end-customer’s China-based contract manufacturers to shutter operations
temporarily in Shenzen (assembler F) and Shanghai/Kunshan (assembler
P). Both companies have since been allowed to resume operations with a
limited scope of operations in a “closed-loop system”, but should the
municipalities fail to control the outbreak resulting in an extended
lockdown, it is likely to adversely impact Inari’s end volumes for FY22/23.
Extending MOU timeline for CFTC JV
Separately, it also recently announced that it will be extending its MOU
with CFTC that is set to expire on 17 April for an additional 2 months owing
to complications in finalising the terms of the OA as a result of the
Shanghai lockdown. With a slew of new products in the pipeline and
foreseeably strong RF segment demand (notwithstanding the Chinese
lockdown blip) from new 5G product launches, we remain sanguine on
Inari’s long-term prospects, and it remains our top Malaysian OSAT pick. .