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Analysts raise Inari Amertron's target price on robust RF chip demand

KUALA LUMPUR (Feb 25): Analysts have raised Inari Amertron Bhd's target price (TP) after the group posted outstanding results for the second quarter ended Dec 31, 2020 (2QFY21).

In an exchange filing yesterday, the group posted its best-ever quarterly net profit of RM90.1 million for 2QFY21, about 2.4 times the RM37.49 million it made in the previous year, driven by stronger volume loadings and margins for its radio frequency (RF) business.

CGS-CIMB analyst Mohd Shanaz Noor Azam said in a note yesterday that he raised FY21-23F earnings per share for Inari Amertron by 5-9%, and expected a three-year earnings per share compound annual growth rate of 32%.

While he maintained his "add" call on the counter, he raised its TP to RM3.90 from RM3.70 previously, pegging the new price to 35 times the price-earnings ratio (PER) of projected earnings for 2022.

According to Shanaz, this was to reflect Inari Amertron's premium over the Malaysian outsource semiconductor assembly and test sector, as well as the unique position of Inari Amertron with its major customer Broadcom to ride on the new 5G smartphone launch cycle.

Meanwhile, Hong Leong Investment Bank Research analyst Tan J Young also maintains a "buy" call on Inari Amertron with a higher TP of RM3.88 (from RM3.28) based on an unchanged PER of 35 times CY22 (previously FY22) fully diluted earnings per share.

According to Tan, the iPhone 12 super cycle is likely to bring Inari Amertron back to its glory days while its optoelectronics division is expected to improve with more customer diversifications and partnerships.

RHB Investment Bank Research analyst Lee Meng Horng said the research house also maintains a "buy" call on Inari with a higher TP of RM4.00 (from RM3.28) with a 22% upside and about 3% of FY22F yield based on higher FY22F PER of 40 times, at three standard deviations above its five-year mean.

The research house also raises Inari Amertron's FY21-23F earnings growth by 16%-12% thanks to higher-than-expected volume loadings and margins from Inari Amertron's RF business, which has seen strong demand due to the increase in content for 5G phones and a lower effective tax rate.

Lee said the target PER is fair, as Inari Amertron is a prime beneficiary of 5G technology, which is poised for mid-term structural growth, coupled with unswaying market interest in the technology sector.

"Inari's 1HFY21 revenue of RM724.5 million and core earnings of RM179 million (up 107.8% year-on-year) exceeded our and street's full-year estimates, at 71.4% and 68.1%, despite the expectation of a weaker 2HFY21," said Lee.

He also added that Inari Amertron's earnings before interest, taxes, depreciation, and amortisation margin expanded 5.3 percentage points to 30.8%, as its utilisation rate improved.

According to Lee, the group also recorded a core profit of RM101.8 million (up 31.9% quarter-on-quarter, up 153.7% year-on-year) for 2QFY21, on the stronger contribution from the RF segment.

He also pointed out that Inari Amertron's strong performance, which was fostered by the rising adoption of 5G smartphones, will continue into next year, and then translate into higher loadings for Inari Amertron.

Lee added that the research house's concern about losing market share to Qualcomm's fully integrated 5G antennas (front end) and modem solutions (back end), which can support both mmWave and Sub-6 GHz 5G, is also alleviated since the existing contract between Inari Amertron's customer and the US-brand smartphone runs until mid-2023.

At the time of writing, Inari Amertron was up 19 sen or 5.79% to RM 3.47, valuing the company at RM11.5 billion.


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