This article first appeared in The Edge Financial Daily on May 24, 2018
Inari Amertron Bhd
(May 23, RM2.21)
Maintain hold with an unchanged target price of RM1.91: Inari Amertron Bhd’s revenue for the cumulative first nine months of financial year 2018 (9MFY18) ended March 31, 2018 of RM1.1 billion translated into a core net profit of RM225.4 million, accounting for 80% and 82% of our and consensus full-year forecasts, respectively. This was deemed in line with expectations of a softer fourth quarter of FY18 (4QFY18). A third single-tier interim dividend of 1.6 sen (3Q17: 1.4 sen) per share was declared, representing an 89% payout. This will go ex on June 6.
On a quarter-on-quarter basis, top line was lower by 13% to RM326 million due to lower loading compounded by US dollar depreciation. In turn, core net profit fell 20%. Meanwhile, on a year-on-year basis, despite the stronger ringgit, turnover strengthened by 19% thanks to an increase in demand and changes in product mix. This translated into a 28% increase in core net profit to RM68 million thanks to better economies of scale. For 9MFY18, revenue and core earnings expanded by 29% and 76%, respectively, for the same reasons.
Management is cautiously optimistic, highlighting: i) there will be continuous global growth especially in emerging Asia and Europe; however, global growth is projected to soften beyond the next couple of years; ii) while 3QFY18 results were not affected by weakened global smartphone sales, 4QFY18 may experience softer RF orders; iii) additionally, the recent US ban against Chinese telecom giant ZTE Corp has also affected its optoelectronics business in 4QFY18; iv) recent improved sentiments have led to a late pickup in orders; and v) Inari expects no major political impact besides the potential changes in minimum wage policies.
Inari will continue to focus on managing costs to improve margins and at the same time work on new manufacturing projects while looking out for investment opportunities to enhance its overall growth. — Hong Leong Investment Bank, May 23