Better times ahead in 2HCY22F
? 9MFY22 results were below our expectations at 74% of our FY22F core NP
(in line with consensus at 78%) as we expect softer earnings in 4QFY6/22F.
? We project stronger sales and NP growth in 2HCY22F, driven by higher RF
volume for new flagship smartphones and a recovery in China operations.
? We cut our FY22-24F EPS by 3-6%. Reiterate Add with a lower RM3.40 TP.
Supply constraints and lower seasonal demand hit 3QFY22 sales
Revenue in 3QFY6/22 fell 14.3% qoq due to lower sales volume from all divisions – radiofrequency (RF), Optoelectronics (Opto) and Generic IC packages. The group attributed the
lower RF volume loading to seasonal cycle and raw material supply constraints in Opto
and Generic IC packages. Despite the lower sales, EBITDA margin in 3QFY22 expanded
by 2.3% pts qoq to 35% mainly due to better cost optimisation. Overall, core net profit in
3QFY22 fell 15.6% yoy to RM90m. The company also declared a third interim DPS of 2.2
sen for 3QFY22, bringing 9MFY22 dividend to 7.8 sen/share, in line with our expectations.
9MFY22 revenue and core net profit grew 14% and 27% yoy
9MFY6/22 revenue grew 13.5% yoy to RM1.2bn, driven by higher sales from RF (+9%),
Opto (+13%) and Generic IC packages (24%). In terms of revenue application, all
segments reported healthy yoy sales growth in 9MFY22, led by mobile device and
automotive, up 9%and 27%, respectively. Both segments made up 75% of Inari’s 9MFY22
revenue. As a result of higher operating leverage, EBITDA margin expanded 2.6% pts yoy
to 33.4% in 9MFY22. Overall, Inari’s 9MFY22 core net profit rose 26.9% yoy to RM304m.
Ramping up production for new smartphone launch in 2HCY22F
We project flattish to marginally higher qoq sales driven by RF in 4QFY6/22F; however,
this will be partially offset by lower sales from Amertron Technology Kunshan (ATK),
following the extended lockdown in China and ongoing wafer shortages for Generic IC
packages. Meanwhile, we also expect higher opex in view of higher labour costs following
the implementation of a new minimum wage policy of RM1,500/month in May 22. We cut
our FY22-24F EPS by 3-6%. Hence, we expect a slightly weaker qoq net profit in
4QFY6/22F. Nevertheless, we still expect a strong pick-up in utilisation from Jul 22
onwards in view of the ramp-up in assembly and test production for RF chips going into
next generation 5G smartphones for a North American smartphone maker.
Reiterate Add with a lower RM3.40 TP
The stock is down 35% YTD, wider than the 32% YTD decline in Bursa KLTech Index.
While near-term market volatility and weak sentiment for the technology sector could be a
drag on the stock, we still like Inari as a proxy for 5G network proliferation. Inari offers a
decent CY22-23F yield of 4.1-4.5%. Reiterate Add with a lower RM3.40 TP. We peg our
valuation to a lower 27x CY23F, based on its 5-year historical mean P/E in view of the
weaker technology sector sentiment (vs. 33x P/E previously; +1 s.d.) The stock trades at
21x FY22F P/E ex-cash basis, which is wider than 1 s.d. below its 5-year mean P/E.