KEY INVESTMENT HIGHLIGHTS

• Maintain NEUTRAL with a revised target price of RM3.08 post the 1QFY25 results announcement
• 1QFY25 normalised earnings of RM77.4m was mainly supported by the steady RF business
• Nonetheless, 1QFY25 financial statement came in at the lower end of ours and consensus expectations
• Cash reserves of more than RM2b put the group in a good position for M&A to expand the non-rf business segment

RF business provides strong support to the group. We are maintaining our NEUTRAL recommendation for Inari with a revised target price of RM3.08 post the 1QFY25 results announcement. The RF business remains an integral part of the group as it provides a steady revenue contribution as seen in the latest quarterly result. Nonetheless, this also showed that the non-RF business is more susceptible to the challenging landscape. The latter also affected the group's overall profit margin. Nonetheless, the group's cash balance remains healthy at more than RM2b. We view that this may lead to higher possibilities for M&A.

Better year-on-year performance. Inari's 1QFY25 normalised earnings contracted by -9.6%yoy to RM77.4m after excluding impact on forex. This was mainly attributable to higher operating costs which led to lower profit margin of +19.9%yoy (vs 1QFY24: 22.3%).

Nonetheless, revenue grew marginally higher by +1.1%yoy to RM388.0m which was led by higher volume loading volume in RF business segments.

All in, Inari's full year 1QFY25 financial performance came in at the lower end of ours and consensus expectations, making up 21.3% and 19.6% of full year FY25 earnings estimates respectively.

More conservative earnings estimates. While we make no changes to our revenue assumptions, we input higher operating costs for FY25 to FY27. This led to lower FY25 to FY27 earnings estimates of between - 3.2% to -7.3%.

Lower target price. Premised on the lower earnings estimates, our target price has been reduced to RM3.08 from RM3.25 previously. This is achieved by pegging revised CY25 EPS of 9.8sen against unchanged target PER of 31.5x.

Decline in 1QFY25 dividend. Given the lower reported earnings for 1QFY25, the group declared a quarterly dividend of 1sen. This was much lower as compared to 2.2sen announced for 1QFY24. Nonetheless, this represents a payout ratio of more than 100% based on reported eps of 0.64sen.

Source: MIDF Research - 28 Nov 2024