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Analysts positive on INARI (0166) INARI AMERTRON BHD’s move to broaden revenue via Chinese joint venture

KUALA LUMPUR (Oct 20): Analysts are positive on Inari Amertron Bhd's memorandum of understanding (MoU) with China Fortune-Tech Capital Co Ltd (CFTC) as it allows Inari to broaden its revenue by riding on the Chinese venture.

Inari announced on Monday it had entered into an MoU with CFTC with the intention to set up a joint-venture company in China to carry out outsourced semiconductor assembly and test manufacturing and related businesses in China for the Chinese market. Inari will contribute 100% of equity shares in Amertron Technology Kunshan (ATK) and new cash investment of 463 million yuan (about RM302 million) to the joint venture.

Kenanga Research said in a note on Wednesday it is positive on the MoU as the group continues its efforts to diversify and increase its revenue streams.

In addition to its solid track record with western customers, Kenanga said, the move will allow the group to grow its presence in China and ride growth opportunities in the region given the ambitious goal of the Chinese government to achieve self-sufficiency in the semiconductor industry.

The research house maintained its financial year ending June 30, 2022 (FY22) and FY23 net profit forecasts of RM394 million and RM451.8 million respectively for Inari as it had yet to factor in any contribution from the MoU at this juncture.

It also maintained its "outperform" call on Inari and target price (TP) of RM4.80.

Meanwhile, Hong Leong Investment Bank (HLIB) Research said in a note on Wednesday that it views the MoU positively as the joint venture will reinvigorate ATK.

It also opined that the Chinese semiconductor market will be vibrant, supported by over US$150 billion investment from the government from 2014 through 2030.

Besides, CFTC is a strong partner which in turn will lower the risk of doing business in China.

The research house maintained its FY22 and FY23 net profit forecasts at RM374.3 million and RM413.7 million for Inari.

It also reiterated "buy" on Inari with an unchanged TP of RM4.28.

“We strongly believe that the iPhone 5G supercycle will continue, while its opto division is expected to improve with more customer diversification and partnerships,” it said.

MIDF Research also said in a note on Wednesday it is positive on the MoU as it allows Inari to expand its operations in China and brings more revenue and earnings stream to the group.

“We revise our revenue and earnings estimates for FY22/23 by +5%/+5.4%,” it said.

It also revised up its TP to RM4.51 from RM4.48.

“We view that the premium valuation is justified due to anticipation of a prolonged upcycle in the semiconductor industry. We maintain our 'buy' call on Inari,” it said.

At the time of writing on Wednesday, Inari was 13 sen or 3.42% higher at RM3.93, valuing the group at RM14 billion. Year to date, the counter had risen 44.49%.


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