KUALA LUMPUR: Affin Hwang Capital research has recommended increasing positions in Inari Amertron
as the latter is poised to be a key beneficiary of the 5G rollout.
In a research note today, Affin Hwang said Inari's management had advised that the RF and sensor businesses are likely to remain soft over the near term although the bad news is likely to have been priced in the 14% correction over the past three months.
"We cut our FY19-21E EPS by 6-19% to reflect the current RF weakness. Thus, we lower our 12-month TP to RM1.89 (from RM2.25), based on an unchanged 24x CY19E EPS."
Affin Hwang said utilisation levels for the RF segment stand at 60-70% and prospects could be better if not for the weakness in end demand for the major smartphone brands.
"Nevertheless, because of the growth in content and a steady increase in testing equipment, we are of the view that FY19E RF revenue will not see any decline.
Moreover, this has not deterred its North US customer from consigning more RF testers, which is approaching the 1,000 unit mark and expected to rise by a further 10% by end FY19.
The research house believes the US customer is anticipating a share uptick in RF filters once 5G takes off, which will require a multiple fold increase in filters for the same device.
"Meanwhile, we understand that Inari is preparing the test protocols for this next evolution, bracing for the next upturn," said Affin Hwang.
In the sensor segment, the research house said there could be potential production volume upside by 2Q CY19 should there be greater adoption of these sensors across its end customer's product portfolio.
It said the segment is currently pushing out six million units a month comprising four different smartphone sensors relating to biometric identification and health, or about half of last year's production volumes.
The mini LED business meanwhile is running close to 20 million units a month and is ready to scale up.
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