KUALA LUMPUR (Sept 8): The Chinese government's potential ban on the use of foreign-branded devices, including iPhones, for work purposes is expected to have a minimal effect on Inari Amertron Bhd's earnings, said TA Securities.

“China accounted for 19% of the major US end-customer’s sales in its latest fiscal year. However, we deduce an insignificant impact to Inari with our back of the envelope estimates indicating a ~1.0%/~1.7% hit to its revenue/earnings for every 10% decline in sales suffered by its major US end-customer in China,” said the research house in a note on Friday.

The research house was responding to recent reports that claimed the Chinese government had banned the devices at its offices.

Note that Inari is heavily dependent on US fabless chip designer Broadcom, which is a key component supplier to Apple. Inari’s exposure on Broadcom is more on radio frequency chips.

Inari was among the top losers in morning trade on Friday, falling as much as 12 sen, or 4%, to a low of RM2.88. The counter dropped as much as 16 sen or 5.33% to a two-month low of RM2.84 before paring its losses to close at RM2.87, down 13 sen or 4.33% from Thursday. At this price, Inari, the country's largest outsourced semiconductor assembly and test provider, is valued at RM10.73 billion.

The counter was the third top decliner on Bursa Malaysia at the time of writing.

While the cyclical downturn in the semiconductor sector continues, it is worth noting that historical trends suggest the industry is on track for a recovery by 2024, TA Securities said.

However, the research house does not rule out the possibility that the recovery will be protracted as concerns grow about the slowing Chinese economy and continued headwinds from uncertain interest rate outlook.

“We continue to like Inari for its strong growth prospects, catalysed by the 5G theme, traction with customer diversification efforts, and above-industry average profitability,” said TA Securities, which has a ‘buy’ call and target price of RM3.50 for Inari.