Inari Amertron Bhd
(Nov 13, RM2.85)
Maintain “buy” with a target price (TP) of RM3.80: We expect Inari Amertron (Inari)’s earnings delivery to remain one of the most solid among its semiconductor peers. This is partially attributed to its strong wireless division growth which is underpinned by its key customer Avago Technologies (M) Sdn Bhd.

Inari’s expansion coincides with the expansion of Avago’s own facility. As a key contractor for Avago’s wireless division, we think that Inari stands to be a major beneficiary. This could also lead to an earnings surprise once the new plant is commissioned. Trading at 12.8 times fair disclosure (FD) of financial year 2015 (FY15) earnings per share, Inari remains our top sector pick given its strong growth prospects. Similar to other semiconductor companies that have reported earnings so far, we expect Inari to release a decent set of its first quarter FY15 (1QFY15) results on Nov 25.

With utilisation levels of its radio frequency division running at full steam, we expect earnings to register a modest sequential growth (4QFY14 net profit of RM30 million). However, we caution that on an annualised basis, earnings could appear weak, as we expect earnings to be progressively stronger heading into the second half of FY15 (2HFY15), once new production capacity at its P13 facility comes on stream.

We maintain “buy” on Inari for its strong growth prospects as the company is highly leveraged to Avago’s strong wireless segment.Key risk to our “buy” rating includes a loss of a key customer or sharper-than-expected slowdown in demand. — Affin Hwang Investment Bank Bhd, Nov 13

This article first appeared in The Edge Financial Daily, on November 14, 2014.