Inari Amertron Bhd
(Feb 6, RM2.95)
Maintain buy with higher target price of RM3.44. Key takeaways from the recent analyst briefing reaffirmed our positive views on both Inari Amertron Bhd and its business outlook. Existing production is well-managed and continues to deliver while capacity expansion and new business are underway.

Radio frequency (RF) remains the main growth driver for financial year 2015 (FY15) to FY16. Backlog and new loading are sustaining capacity running at full steam as demand continues its momentum.

Expansion at the newly acquired factory is expected to be completed in three weeks and ready for qualification. This will add 100 test machines in P3’s Room 1 raising Inari’s total testers to 522.

Subsequently, another 50 testers will be located in P13’s second floor Room 2 and should be ready by mid-March. P13’s Room 2 has been reserved for RF expansion in 2016.

On Amertron, although contribution was softer, transformation is on track to enhance its profitability. At Kunshan, Inari has successfully negotiated with Osram to share part of the costs as orders were lower than forecast.

As for the two plants in the Philippines, Inari is improving its productivity by investing in automation. The Clark Field factory will also be expanded with additional 80,000 sq ft by end-2015 for new business venture.

The business development team has been tasked with handling chip fabrication/wafer sorting. Inari has also hired 13 staff to undergo training in the United States and Mexico in order to build such facility in P13’s Room 3. This will mainly focus on photonic identity cards.

Ceedtec Sdn Bhd remains challenging as sourcing requires strong cash flow, but it expects break even by FY15. Ceedtec is exploring ways to move away from low- to high-margin products, such as oscilloscopes.

Catalysts are: (i) wireless communications, mobility; (ii) Internet of things (machine-to-machine); (iii) long-term evolution; (iv) business diversification into optoelectronics; (v) favourable foreign exchange (forex); and (vi) continuous effective operational strategy.

Risks are: (i) high dependency on major clients such as Avago Technology Ltd; (ii) forex risks; (iii) patent disputes and (iv) shortages of resources and labour. — Hong Leong Investment Bank Bhd, Feb 6

This article first appeared in The Edge Financial Daily, on February 9, 2015.