AllianceDBS upgrades Inari, raises target to RM2

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KUALA LUMPUR (April 12): Despite a tepid year ahead due to lower sales for the radio frequency segment (RF) amid weak smartphone shipment at key end-customers, AllianceDBS Research has upgraded Inari Amertron Bhd to a “Buy” with a higher target price of RM2, from RM1.60 previously, as it views ample upside opportunities moving forward, especially from the introduction of 5G technology.

In a note today, the research firm said while the stock has corrected by 35% from its 2018 peak and its share price might still be dampened by near-term quarterly earnings weakness, this could provide the opportunity for investors to accumulate.

It added that the recovery in the radio frequency (RF) segment — tracking Broadcom’s guidance — and Inari securing new businesses for its new P34 plant in Batu Kawan, should also progressively take place towards end of second half of this year.

“Looking beyond the current transition phase, we believe investors will start to appreciate the 5G growth potential for Inari, once the technology is progressively being ramped up in new smartphone models.

“In our forecasts, we expect Inari’s radio frequency segment to grow by 15%-17% from financial years 2020 to 2021 (FY20-21), recovering from the dip in FY19. This is also partly helped by the expectations that Broadcom would regain the market share that it lost to competitors.

“This should also help to boost Inari’s valuation, which is currently trading at its mean of about 17.5 times calendar year 2020 price-earnings ratio (PER),” its analyst Toh Woo Kim wrote, adding that the higher-than-consensus PER is as he believes its valuation will re-rate, once Inari’s RF segment returns to growth trajectory.

Shares of Inari were traded unchanged at RM1.64 as of writing, for a market capitalisation of RM5.21 billion.