Following the analyst briefing, we remain optimistic about INARI’s outlook, backed by the healthy earnings contribution from the radio frequency (RF) segment. On top of that, we are excited about the latest progress update on the new projects that focus on memory, high power LED, system on module, and optical/sensor products. On the other hand, the progress of the new plant in China remains intact. Overall, we maintain a Buy call on INARI with an unchanged target price of RM3.55.

Radio Frequency Segment Remains Solid

To recap, INARI’s 1HFY24 core profit dropped 11.7% to RM179.5mn, despite revenue was 2.4% higher at RM798.0mn. The bottom line largely dragged by higher electricity rates as well as losses arising from glitches in electricity supply. Additionally, the group also recognised around RM5.0mn additional costs for new products upgrading and new technology development set up during the quarter. Nevertheless, the group still maintained above industry average profitability with core net margin at 22.5%. Going forward, management guided that the RF segment is expected to remain stable. Meanwhile, the utilisation rate for the RF segment is currently about 80%. Overall, management is confident that the RF segment will perform better in FY24, underpinned by launching of new smart phones and growing content.

New Projects Are On Track

The group will continue to work on new projects as part of its customer diversification efforts. Management guided that the new projects will continue to focus on the areas of memory product, high power LED, system on module, and optical/sensor products. For the memory product, the group has already started the first line that involves in complex 4-stack thin die bonding. Management is eying to expand into 4 lines by 3QCY24. For the high-power LED, the group is currently working with a big Chinese customer. Meanwhile, the volume for system on module is still insignificant. At this juncture, the group is eying to qualify for more products. For optical/sensor products, the group will continue to focus on new product introduction. For FY24, management guided that the capex is around RM100.0mn.

The Progress of China JV Remains Intact

INARI’s 54.5%-owned Yiwu Semiconductor International Corporation (YSIC) in China has passed the qualification for chip-scale packaging. Currently, the unit is actively looking for new customers. To recap, YSIC is a joint venture between INARI and China Fortune-Tech Capital Co Ltd. The JV is intended to carry out outsourced semiconductor assembly and test manufacturing and related business exclusively for the Chinese market. In the meantime, YSIC plans to carry out the sample build for system-in-package and wafer level packaging in the upcoming quarters. Over a longer term, management believes that YSIC stands a good chance to capitalise on the strong growth of fabrication facilities in China, given that the Chinese semiconductor players are committed to accelerate the localisation of their supply chain amid the Persisting US-China Trade Tensions.

Impact

Maintain FY24 to FY26 Earnings Forecasts.

Valuation & Recommendation

No change to our target price of RM3.55, based on unchanged 33x CY24 earnings. Reiterate a Buy call on the stock.

Source: TA Research - 28 Feb 2024