KUALA LUMPUR (Feb 26): Inari Amertron Bhd shares fell by as much as 4.27% this morning, after the semiconductor company reported that its net profit for the second quarter ended Dec 31, 2019 (2QFY20) fell 32% on the back of product mix changes, higher depreciation costs and less favourable foreign exchange rates.

At 9:39am, the stock was trading 3.05% or five sen lower at RM1.59 — reaching a year-to-date low — giving it a market capitalisation of RM5.15 billion.

In terms of volume the counter saw 4.39 million shares traded.

A quick check on Bloomberg revealed that a total of 19 analysts cover the stock, six of which have buy calls, four have hold calls and nine have sell calls.

Its consensus 12-month target price (TP) stands at RM1.69. At the time of writing, Inari was trading 5.91% below its consensus 12-month TP.

The analysts who cover the stock have placed TPs ranging between RM1.23 and RM2.14.

In a note to investors today, Affin Hwang Capital Research’s Kevin Low said while the research house was still maintaining its "Buy" call, it was cutting its TP on the counter to RM1.80, from RM2.14 previously.

Moreover, the research house cut its earnings estimates.

“We cut the FY20-22E EPS (earnings per share) by 2-20% to factor in the weaker opto business and also to account for some delays in new production starts arising from the Covid-19 outbreak,” said Low.

Meanwhile, AmInvestment Bank Research said it was maintaining its "Hold" call on Inari as it was cautious on short-term uncertainties relating to its key customers and the impact of Covid-19 on its business.

“Nevertheless, we continue to like Inari because of: (i) the resilience of its RF segment’s earnings due to higher chip complexity in 5G phones; (ii) potential growth in laser devices arising from more biometric and augmented reality (AR) applications in smartphones; and (iii) its growth in LED, riding on higher demand for high-resolution shopping mall billboards,” the research team at AmInvestment Bank Research said while cutting its fair value on Inari to RM1.69, from RM1.79 previously.

In the case of TA Securities Research, the research house has downgraded Inari to a “Sell” call from a “Buy” call previously. In addition, the research house has also cut its TP on the counter to RM1.46, from RM1.98 previously.

“We have lowered FY20-FY22 earnings estimates by 19-20% after cutting our sales by 8-15% on account of the lower-than-expected loadings and potential weakness to sales caused by the Covid-19 outbreak,” it said in a note.

CGS-CIMB Research’s Mohd Shanaz Noor Azam stated in a note yesterday that he was cutting the EPS forecasts for FY20 to FY22 to reflect a lower utilisation assumption, especially for optoelectronics and generic integrated circuit segments.

While he recognises Inari as a potential beneficiary in the deployment of 5G technology, the Covid-19 outbreak is likely to affect the global semiconductor industry supply chain, thus impacting the project industry demand in 2020.

“Nevertheless, Inari and the domestic semiconductor industry could still benefit from a potential depreciation in the ringgit against the US dollar, due to the increased domestic political uncertainties,” he said while reiterating a reduce rating and lower TP of RM1.40, from RM1.75 previously.

To recap, the group’s 2QFY20 net profit declined by 32% to RM37.49 million, from RM55.09 million in the corresponding quarter a year prior. Quarterly revenue fell 11.56% to RM265 million, from RM375.96 million in 2QFY19.

This brought net profit for the six months ended Dec 31, 2019 down by 26% y-o-y to RM85.22 million from RM115.24 million due to lower revenue — which dropped 7% to RM582.04 million from RM625.87 million previously.