Inari Amertron Bhd
(April 30, RM3.18)
Reiterate buy with target price of RM4.05: Inari Amertron Bhd’s nine months ended March 31 of financial year 2015 (9MFY15) results, due out on May 14, are likely to fall short from RM112 million to RM115 million in net profit (+55% to +59% year-on-year [y-o-y] which is 69% and 71% of our initial FY15 forecast respectively), impacted by start-up costs of its new plant P13  in Bayan Lepas, Penang. Also, Inari saw no increase in outsource orders in the third quarter ended March 31 (3QFY15) from American company Avago Technologies as it was facing a wafer supply constraint despite strong demand. We understand this constraint will gradually ease as Avago has invested in wafer fabrication capacity expansion which will lead to a gradual increase in production this year.

Our recent visit to P13 saw a small-scale radio frequency production with about 120 testers already in place as at end-April, taking the total to about 650 units for the Penang operations. Inari guided that P13 is able to house up to 300 testers without having to change its layout.

We lower our FY15 plant utilisation expectation to 80% from 85% due to the shortage of wafers from Avago. For FY16/FY17, we raise the number of testers by 150 units to 822 units, maximising P13’s space, but with lower overall plant utilisation of 80% to 85% versus 90% to 95% previously. Correspondingly, our FY15/FY16/FY17 net profit forecasts are adjusted by –5%, +1% and +3% respectively. As wafer constraint gradually eases with Avago’s new wafer fab capacity, we also expect Inari’s P13 to ramp up its production. We remain excited about Inari’s near-term earnings growth potential from P13. Valuation remains undemanding. We reiterate our “buy” call. — Maybank IB Research, April 30

This article first appeared in The Edge Financial Daily, on May 5, 2015.