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Kenanga Research maintains 'outperform' call on Inari Amertron, with higher target price

KUALA LUMPUR (July 26): Recognising the current chip shortage environment, Inari Amertron Bhd has kick-started a US smartphone programme one to two months ahead of typical schedule to ensure meeting the timeline of its key customer’s annual launch event in September.

"The US smartphone company has also reportedly informed suppliers to increase production volume by 20%, suggesting strong confidence in the marketability of the upcoming 2021 flagship device," said Kenanga Research in a note to investors today.

The research house is maintaining an "outperform" call on Inari, but with a higher target price of RM4.60 from RM4 previously, based on the forward FY22 price-to-earnings ratio of 40 times. At 11.03am today, Inari shares were up 0.5 sen or 1.49% at RM3.40, bringing a market capitalisation of RM11.38 billion.

"This is justified by a super technology cycle driven by 5G and prospects from potential new customers or merger and acquisition, which are not priced-in by the market yet," it added.

Kenanga Research said from its channel checks, it has gathered that the upcoming US smartphone may potentially sport a high refresh rate display of up to 120Hz with an always-on function, "which we believe will be the biggest highlight among the new features offered this year".

"Having the first high refresh rate organic light-emitting diode display in its product line-up would introduce a whole new immersive experience when interacting with the device. Users will be able to quickly notice the fluid animation transitions, particularly in fast action gameplays.

"Furthermore, with easing lockdown restrictions, a hands-on experience in retail outlets would further amplify the attractiveness of the smartphone as its users have never experienced such a high refresh rate display before and are likely to be instantly captivated," it noted.

The research house has raised its FY21 and FY22 net profit forecasts for Inari by 7% and 16% to RM301.5 million and RM375.3 million, respectively, on higher production volume in anticipation of strong demand from end consumers.

Potential downside risks to the research house's call are less aggressive orders from its key customer, delay in 5G rollout, and higher-than-expected input costs, it added.


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