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KUALA LUMPUR: CIMB Equities Research is retaining its Add rating for Inari-Amertron with an unchanged target price of RM4.
It said on Friday the RM4 target price is based on 14 times CY17 price-to-earnings (P/E), a 10% premium over the sector P/E.
“Potential rerating catalysts include higher RF content growth per smartphone and sustainable margin growth at Amertron. Inari remains our sector top pick due to its strong three-year EPS CAGR of 21%,” it said.
To recap, Inari is acquiring 5.25 acres of industrial land with a factory building in Bayan Lepas, Penang, for RM22.8mil.
The plan is to raise its production capacity, especially in the radio frequency (RF) division given the resilient industry demand for advanced RF components for smartphone applications.
“We expect the new factory to be ready for production in 2017, following renovation, modification and enhancement works. We estimate the new building will raise its total RF division floor space to over 700k sq ft,” it added.
CIMB Research said Inari expects to fund the acquisition through internal funds and bank borrowings. It could fully fund the acquisition internally given that it had a healthy net cash position of RM206mil as at end-September 2015.
Moreover, the company also has RM88mil in unutilised proceeds from its rights issuance. Management had earlier allocated about RM30mil of its capex for acquisitions.
“The stock is down 11% YTD partly due to the weak sentiment across the sector following concerns over Apple cutting its iPhone production by 30% and also the reversal in currency movement given the strengthening of the RM against the US$.
“Nevertheless, we believe Inari’s fundamentals remain intact given that RF content in smartphones is expected to grow by more than 20% p.a. over the next three years,” it said.
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