Excluding net foreign exchange (FX) loss amounting to RM0.7m, Inari Amertron (Inari) registered a solid 1QFY24 core profit of RM85.5m, underpinned by radio frequency segment. The results were in line with our and market expectations, making up 23.2% and 21.4% of full-year numbers, respectively. Management expects to see an increase in 2QFY24 RF loading volume, up 15% QoQ. We reiterate our Outperform call with a new TP of RM3.62 (previously RM3.53) after rolling over our valuations to FY25F. A first DPS of 2.2sen (vs 1QFY23: 2.6sen) was declared for the quarter.

• A slight increase in topline. During the quarter, Inari’s revenue climbed 1.8% YoY to RM383.9m, led by higher radio frequency sales. Radio frequency segment contributed 63% of total revenue followed by Opto (31%) and Generic (6%). Stripping out net FX loss of RM0.7m, 1QFY24 core earnings were marginally higher at RM85.5m, as a jump in finance income (+76%) was partially offset by an increase in electricity rates as well as losses (RM5m) arising from glitches in electricity supply experienced during the quarter. Gross margin weakened from 29% to 24% on the back of higher operating costs.

• Extending the timeframe for the private placement proceeds. Management has extended the timeframe for the utilization of the remaining unutilized proceeds earmarked for the capital expenditure, acquisition and investment for another 24 months from 30th Jan 2024 to 29th Jan 2026. The revised timeframe does not require the approval of any regulatory authorities or the shareholders. As of now, the unutilized proceeds stand at RM641.6m.

• Apple faces delays in custom modem development. According to various reports, Apple Inc has encountered significant delays in the development of its own 5G modems, which means the tech giant will continue to depend on Qualcomm for its modem needs until late 2025 or possibly into early 2026. The internal development of custom 5G modems by Apple is a part of the company’s goal to take greater control over its hardware components, which is expected to improve profit margins and reduce reliance on third-party suppliers. Apple is also working on proprietary Bluetooth and Wi-Fi chips aimed at reducing its dependency on Broadcom. However, like its modem development, these efforts have faced setbacks. As Apple navigates through these challenges, it underscores the complexities involved in innovating and producing cutting-edge technology components inhouse. Judging by the complexity of design, radio frequency chip would probably take even longer period before Apple can have the capability for in-house development.

Source: PublicInvest Research - 23 Nov 2023