Investment Highlights

• We maintain BUY recommendation on Inari Amertron (Inari) with ab unchanged fair value (FV) of RM4.36/share, based on FY25F PE of 36x – 2.5 SD above its 5-year mean of 24x. We made no adjustments to our 4-star ESG rating, which translates to a 3% premium to Inari’s FV.
   
• We walked away feeling optimistic on the company’s long term growth prospects. Key takeaways are:
   
  • Radio frequency (RF) orders are expected to grow further in FY25F as high-density content chips for new generation device models would require Inari’s superior capability of process engineering. Hence, revenue contribution from RF is likely to stay above 60%.
     
  • Inari is ramping up capacity for 800G optical transceivers in Malaysia. Apart from the ramp up, Inari also invested some capex for chip fab process, which is expected to generate additional revenue of RM10mil- 15mil per annum. Meanwhile in the Philippines, Inari has started to build new facility for 800G production with target completion by 3QFY25.
     
  • The company alluded that 4 production lines for memory modules have been installed and high-volume manufacturing will begin by 2QFY25, which will progressively ramp up to reach full capacity. The revenue contribution could potentially reach RM60mil based on full utilisation.
     
  • Inari is currently in discussion with a new potential customer seeking to diversify its production base (China + 1 strategy) on power management projects
     
  • All in, management guided that the company will spend capex of RM150mil and R&D expenses of RM20mil in FY25F (FY24: RM181mil capex, RM17mil R&D expenses). This is within our FY25F capex assumption.
     
• Over the longer term, we foresee stronger overall revenue growth for Inari, driven by:

     (i) Higher content requirements of RF filters for new generation smartphones,

     (ii) Higher demand for optical transceivers used in data centres, and

     (iii) Ongoing new product innovations in tandem with new technological advancements.

• From a valuation perspective, the stock is currently trading at a compelling 25.6x FY25F PE, which is below its 5-year peak of over 50x.

Source: AmInvest Research - 29 Aug 2024