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This article first appeared in The Edge Financial Daily on September 12, 2019

Inari Amertron Bhd
(Sept 11, RM1.73)
Maintain hold with a higher fair value (FV) of RM1.59:
We maintain our “hold” call on Inari Amertron Bhd with a higher FV of RM1.59 a share. We roll forward our valuation from forecast financial year 2020 to a forecast calendar year 2020 price-earnings ratio of 17.5 times, while maintaining our earnings forecasts.

Apple Inc, at a keynote event in the Steve Jobs Theater, unveiled three new models — the iPhone 11, 11 Pro and 11 Pro Max. Pre-orders begin tomorrow with price tags of US$699 (RM2,922), US$999 and US$1,099 respectively.

The iPhone 11 replaces last year’s entry-level iPhone XR but is priced US$50 lower. We deem that Apple’s decision on a price reduction is due to the underwhelming demand for iPhone XR last year.

While none of the three models support fifth-generation (5G) connectivity, we note, based on the specification sheets, that the latest iPhone models support Band 42 (3,500MHz) and Band 48 (3,600MHz).

These frequencies are within the 3.5GHz range that is emerging as a core band for 5G in the mid-frequency category, owing to its capability to provide a good mix of capacity (the amount of data transfer) and coverage (the distance the signals travel). As detailed in the GSM Association’s 5G spectrum position paper, 5G needs spectrums in three key frequency ranges — low (sub-1GHz), mid (1GHz to 6GHz) and high (above 6GHz).

Recall that the long-standing feud between Apple and Qualcomm Inc was only settled in April, leaving Apple with less than sufficient time to incorporate Qualcomm’s 5G modem in its latest iPhones. Historically, Apple has also been slower than its peers in terms of adopting new cellular technology, as seen during the transition from 3G to 4G.

However, we opine that the addition of these frequency bands serves as an early sign leading up to the adoption of 5G in iPhones in 2020.

The latest iPhone line-up also features a new A13 processor which promises better performance and efficiency, providing up to five hours of extra battery life compared with the iPhone X last year. The entry-level iPhone 11 has an upgraded dual-camera set-up, while the 11 Pro and 11 Pro Max get the range-topping triple-camera set-up.

Based on the keynote presentation, we feel that Apple is placing more emphasis on its software rather than hardware, such as Apple TV+ and Apple Arcade, in line with its strategy to focus on recurring subscription income given the slowdown in hardware sales.

With 5G support expected to only materialise in the 2020 iPhone models, outsourced assembly and test players in the radio frequency supply chain may only see meaningful contributions next year. — AmInvestment Bank, Sept 11

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