Friday 29 Mar 2024
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INARI Amertron Bhd (fundamental: 2.70; valuation: 1.50), an electronic manufacturing services provider, has seen impressive growth thanks to its successful expansion endeavours and favourable factors such as the stronger US dollar against the ringgit.

Although its share price has more than doubled since a year ago, analysts remain bullish on the stock. Inari’s share price jumped from RM1.43 in January last year to a high of RM3.00 on July 11. The stock closed at RM2.91 last Thursday.

Analysts who track the counter have their target prices in the range of RM3.41 to RM3.95, implying an upside potential of over 30%.

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The company’s warrant, Inari-WA, could be a cheaper proxy to ride on the upside potential, considering it still has about three years before it expires on April 6, 2018. Based on last Thursday’s closing of RM2.53, the warrant is currently trading at zero premium.

Inari-WA’s price has also fared well in tandem with its mother share, climbing from RM1.14 in January last year to RM2.71 on July 10. The derivative has an exercise price of 38 sen.

Inari, which is in the midst of expanding the production lines for its radio frequency (RF) segment, has managed to achieve a tremendous year-on-year earnings growth. For the six months ended Dec 31, 2014 (1HFY2015), the company reported a net profit of RM74.08 million, a 62% jump from RM45.46 million in 1HFY2014.

Similarly, revenue grew to RM449.8 million from RM377.96 million in the previous corresponding period.

Maybank Investment Bank highlights the strong US dollar and expanded capacity as key drivers for Inari in the medium term.

“The strengthening US dollar has resulted in a net positive benefit for Inari despite cost-down requirements by its clients. Its effective forex last quarter was 3.27 per US dollar due to its forward hedging mechanism,” says the research house in a Feb 6 note.

“Its new installed capacity will provide better scale, growth prospects and opportunities to capture new revenue streams, given Inari’s proven execution track record.”

Affin Hwang Capital concurs in its Feb 5 research note, stating that the demand for Inari’s RF chips remains robust due to the tremendous growth in mobile devices in China.

(Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)


This article first appeared in The Edge Malaysia Weekly, on February 16-22, 2015.

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