Positive on Inari’s land purchase in Batu Kawan.

Expect another acquisition in the near term to boost production capacity to meet Avago’s rising demand.

Reiterate BUY with an unchanged MYR4.20 cum-rights TP (17x CY15 PER).

What’s New

Simfoni Bistari (Simfoni), a wholly-owned subsidiary of Inari, has inked a Sale and Purchase Agreement (SPA) with the Penang Development Corporation (PDC) for the acquisition of 5.05-acres of industrial leasehold land in Batu Kawan Industrial Park, Penang mainland, for a total of MYR8m cash.

The land, located at Plot 315, Batu Kawan Industrial Park, Daerah Seberang Perai Selatan, will allow Inari to construct a new manufacturing plant upon delivery which is expected to be two years from the SPA signing, taking into account necessary earthworks and provision of infrastructure by PDC.

What’s Our View

Land cost of MYR36psf is fair given the current asking prices of MYR30-37psf in that area. While we are positive on this development, Inari will only be able to begin construction of this new manufacturing plant in 2016, making no impact to near-term earnings. Meanwhile, with Inari’s recent cash call, we do not rule out the possibility of an acquisition of an existing plant to boost its near-term production for Avago.

Demand for smart devices, adoption of faster cellular network and cloud computing activities are on the rise. As one of Avago’s key EMS companies, there are many opportunities for well-equipped Inari to capitalise on. Risk/reward ratio is compelling, valuations are undemanding at 13x CY15 PER with a PEG of just 0.5x.  

Source: Maybank Research - 15 Aug 2014