KUALA LUMPUR: AmInvestment Research views Inari Amertron
(Inari) and Taiwan-based PCL Technologies’ (PCL) decision to terminate the MoU for a joint venture (JV) to provide outsourced semiconductor assembly and test (OSAT) services to major customers in China as a “missed opportunity”.
It said on Friday the announcement effectively brings an end to the long-drawn-out negotiations between Inari and PCL, which lasted for almost a year. The MoU had been extended three times over10 months.
“Although the termination does not have any financial impact on the company, it is regrettable given that the JV could have been a valuation kicker when the ‘National Guideline for the Development and Promotion of the IC Industry’ initiative in China shifts into high gear,” it said.
AmInvestment Research said the initial ambition with the JV was to focus on front-end OSAT services, with a congruent roadmap to list the business on the stock market of China within five years.
“We gather from management that the termination was on grounds that both parties were deluged with high-priority jobs currently in hand, for example, the manufacturing of iris-recognition components for Inari.
“However, the grand plan to tap into the explosive growth of China’s semiconductor industry is only put on a pause. In the future, management has said that it may very well relook into the possibility of tie-ups with PCL when the timing is right,” it said.
AmInvestment Research said it understands that Inari still owns a 9.7% stake in PCL, which gives it a slight exposure in China through PCL (Suzou) Co Ltd (PCL's China subsidiary).
It estimated that PCL contributed about RM1mil or 2% of Inari’s 1QFY17 total comprehensive income in the form of fair value increase of available-for-sale investment, which is parked under other comprehensive income before the realisation of investment.
Inari has positioned itself to capture the growth of China’s semiconductor industry through its subsidiary Amertron Technology Kunshan (ATK) in China, which manufactures LED display and infrared sensors.
“Based on our projections, ATK accounted for close to 10% of total revenue in FY16.
“All-in, while the termination is a missed opportunity for Inari, we remain positive about its prospects from the adoption of iris-recognition technology.
“We maintain our Hold call on Inari with an unchanged fair value of RM2.15 a share based on FY18F PE of 18 times, which is one standard deviation above its three-year average.
“MPI, Globetronics and Unisem are currently trading at a one-year forward PE of 11 times, 21 times and 12 times respectively,” it said.
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