KUALA LUMPUR (Feb 21): CGS-CIMB Research has maintained its “add” rating of Inari Amertron Bhd at RM3.20 with a lower target price (TP) of RM4.30 (from RM4.95) and said the company’s core net profit for the first half ended Dec 31, 2021 (1HFY22) was in line with house expectations at 52% of its FY22 forecast but beat the Bloomberg consensus estimate at 56%.

In a note on Monday (Feb 21), the research house said it expects Inari’s earnings growth momentum to continue on the back of rising 5G penetration and successful diversification into auto and industrial.

CGS-CIMB said Inari’s revenue for the second quarter (2QFY22) dropped 2.5% quarter-on-quarter (q-o-q) due to lower sales of optoelectronics and generic IC packages, which fell by 8.5% and 2.3% q-o-q respectively.

“However, this was partially offset by a stronger contribution from the radio-frequency (RF) division, with sales rising 1% q-o-q.

“Stripping out reversal inventory write-downs and gains on PPE (personal protective equipment) disposal for a total of RM808,000, Inari’s core net profit fell 1.4% q-o-q to RM106.5 million for 2QFY22,” it said.

The research house projects Inari to deliver a 20% year-on-year (y-o-y) sales growth for its RF division in FY22, driven by higher RF content growth in mobile devices on the back of ongoing migration from 4G to 5G networks.

“We project the RF division to contribute 62% of Inari’s FY22 sales (versus 60% in FY21).

“We expect stronger y-o-y sales from the RF division in 1HCY22 (the first half of calendar year 2022) to be driven by order pull-ins for legacy products and a better sales mix going into new-generation mobile devices in 2HCY22 for North American smartphone makers,” it said.

CGS-CIMB reiterated its "add" call on Inari, with a lower TP of RM4.30, based on a lower 33 times CY23 forecast price-earnings (versus 38 times) in view of weaker sentiment on the tech sector amid rising interest rates.