Inari Amertron Bhd
(March 11, RM3.20)
Maintain buy with a target price (TP) of RM3.95: We recently hosted Inari Amertron on a two-day non-deal roadshow in Hong Kong. The management team was represented by Inari chief executive officer Lau Kean Cheong and executive director Ho Phon Guan.

Institutional funds were generally receptive towards Inari’s near-term growth which rides on bigger orders for its radio frequency (RF) division from its major customer, AvagoTechnologies Ltd (not-rated), which accounts for more than 90% of revenue. 

Queries were mostly on Inari’s single customer risk and mitigating strategies, capacity expansion, next growth catalyst and US dollar sensitivity.

Inari’s partnership with Avago blossomed even before its initial public offering (IPO) in 2006 with Avago Technologies (M) Sdn Bhd holding a 13.5% strategic stake pre-IPO. Over the years, despite the exit of Avago as its shareholder, the working partnership has grown — Inari is today the largest test house for Avago’s RF products.

While Avago remains its largest customer because of fast-growing outsourcing works, Inari has diversified its customer portfolio to include Osram Opto Semiconductors GmbH and Agilent Technologies Ltd in recent years.

Going forward, Inari expects additional outsourcing of newer products by Avago following its recent acquisition of connectivity solution or enterprise storage related assets (that is CyOptics Inc, LSI Corp, PLX Technology Inc, Emulex Corp).

For this, Inari’s wholly-owned Inasri South Keytech Sdn Bhd and Amertron Inc (Global) Ltd are equipped to support fibre optics-related products.

Further strengthening of the US dollar also benefits Inari which is a net exporter in US dollars (90% or 70% of its revenue is in the green back), with every 1% change in the RM/US dollar exchange rate is a 2.3% change to earnings. — Maybank Investment Bank Bhd, March 11

This article first appeared in The Edge Financial Daily, on March 12, 2015.