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With its share price surpassing our TP, we proactively reassessed our call and decided to upgrade its TP to RM4.00 with confidence. Foreign investors seem to be returning to Malaysia, which puts Inari in the limelight given its large overseas following. With semiconductor shortage everywhere coupled with its available space in P34, Inari is primed to benefit and could likely secure new customers soon. Having expanded its RF assembly capacity from 8 to 22 lines recently (from Sep to Dec 2020), upcoming earnings are expected to be robust. Reiterate OUTPERFORM with a higher Target Price of RM4.00.

All eyes on the leader. For 2021, key themes for the technology sector are 5G and EV. As such, we believe Inari, being one of the purest 5G plays in Malaysia, could see continuous re-ratings and rising interests from investors, including foreign funds. Post 18 consecutive months of foreign fund outflows, there are finally signs of foreign investors returning to Malaysia (see Exhibit 1). In this regard, Inari stands out, given its 16-18% foreign shareholdings and also having one of the best international visibility among the Malaysian technology stocks. More importantly, Inari is one of the cheapest in terms of forward PE whilst offering superior growth prospects among large technology peers locally (see Exhibit 2). It is also noteworthy that Inari has reached a new milestone by crossing RM10b market cap last week, strengthening its No.1 position as the Malaysian technology leader.

Space is king. We have been hearing of semiconductor shortage everywhere to the extent that regional OSATs are raising prices due to exceptionally robust demand. To reduce these bottlenecks, the best solution is to expand capacity. Recall that Inari has recently completed its massive expansion in Batu Kawan with 680k sq. ft. floor space, of which 480k sq. ft. remains unutilised. This puts Inari in a prime position to welcome multinational corporations (MNCs) as potential customers. As these MNCs scramble for supply and seek partners that can deliver with minimal disruption and shortest time-to-market, Inari ticks all the boxes given its proven operational track record. From our checks, management is already in talks with two MNCs and could firm up something soon.  

Blockbuster profit ahead. Inari has just expanded its radio frequency (RF) system-in-a-package (SiP) assembly capacity from 8 lines to 22 lines in phases (from Sep to Dec 2020), thanks to doubling of RF content in the latest generation US smartphone. By now, all new assembly lines are already in production mode, which means meaningful contribution should kick in from 3QFY21 onwards. As per our check last week, Inari is currently running at 90% utilisation, defying the typical seasonality, and signalling robust earnings.  

We maintain our earnings forecast and OUTPERFORM call with a higher Target Price of RM4.00 (previously RM3.14), based on rolled-forward FY22E PER of 40x (previously 35x), at +2SD to its 1-year mean, justified by a super technology cycle driven by 5G and prospects from potential new customers/M&A which are not priced-in by the market yet.  

Risks to our call include: (i) less aggressive orders from its key customer, (ii) delay in 5G rollout, and (iii) higher-than-expected input costs
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27/01/2021 8:58 AM

27/01/2021 3:12 PM


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