This article first appeared in The Edge Financial Daily, on January 4, 2016.

Inari Amertron Bhd

Inari Amertron Bhd’s rosy days are expected to continue into this year on the back of capacity and production expansion, coupled with growth expected in the global semiconductor industry.

TA Securities technology analyst Paul Yap said the company’s earnings in 2016 are expected to be driven by both the weaker ringgit and ramp-up of testers at its P13 facility in Bayan Lepas, Penang.

“The short-term and long-term prospects for the company are good,” Yap said. “It is already in discussion to expand its P13 facility, termed P13B,  to support its next wave of growth in its radio frequency (RF) business.”

He said the expansion of the P13 facility will see the company boosting the number of testers to 800 by October this year from 609 testers in October last year.

Yap also said Inari could also gain potential opportunities from the merger between Avago Technologies Ltd — Inari’s principal client — and Broadcom Corp. Inari’s other client, Germany-based Osram Licht AG also plans to build a light emitting diode chip plant in Kulim, Kedah.

“The group (Inari) may potentially benefit from this due to the existing relationships with both companies (Avago and Osram),” he added.

For the financial year ended June 30, 2015 (FY15), Inari’s net profit climbed 40.26% to RM40.38 million from RM28.79 million in FY14, on the back of a 13.91% increase in revenue to RM255.02 million from RM223.88 million in FY14.

Yap also said the prospects for Inari’s RF business are bright as Avago is still unable to satisfy demand from Chinese long-term evolution handset original equipment manufacturers. The RF segment contributes about 50% of the group’s revenue.

CIMB Investment Bank analyst Mohd Shahnaz Noor Azam said Inari plans to increase its production floor area by another 50% to 506,000 sq ft this year from 328,000 sq ft currently, which will be supported by orders from Avago.

He likes the company due to its strong balance sheet, with a net cash position of RM206 million, which is sufficient to support Inari’s expansion drive. Inari is involved in the back-end semiconductor packaging, which comprises back-end wafer processing, package assembly and RF final testing for the semiconductor industry.

According to the World Semiconductor Trade Statistics, the global market is expected to grow at a modest pace of 1.4% in 2016, driven by forecast growth across all major products (excluding memory) and all regions (except Europe).

In one year, Inari shares had soared 90%, outperforming the FBM KLCI’s 3.97% decline. Inari shares closed 2 sen or 4.18% lower at RM4.58 last Thursday, with a market capitalisation of RM3.54 billion.