KUALA LUMPUR: CIMB Equities Research is retaining its Hold call for Inari Amertron
with a lower target price of RM1.40 compared with its earlier RM1.60.
It said on Friday the group was expecting minimal volume improvement due to a gradual ramp-up of new products and weaker-than-expected smartphone demand.
In the previous briefing in February, the group was cautiously optimistic for a stronger earnings delivery in 4QFY19, driven by capacity expansion of mixed signal testing services, new 2D and 3D facial recognition sensors for smartphone application and a new mini LED line.
“We see escalating trade tension between US and China following the move by President Donald Trump to prohibit US enterprises from selling hardware and software to Huawei as a key risk to global smartphone demand.
“The recent event could delay 5G network deployment, which is a key growth driver for smartphone and radio-frequency (RF) components demand. Moreover, we see further downside risk from a potential hike in Apple’s iPhone selling price if the US imposes a 25% import tariff on mobile phones produced in China,” it said.
CIMB Research said its Hold call with a lower RM1.40 TP was still based on 16 times CY20F P/E, in line with the target sector P/E.
“Depreciation in ringgit vs US$ and higher contribution from the new portfolio are upside risks, while prolonged weakness in the smartphone market and escalation of the US-China trade war are key downside risks to our call,” it said.
The research house said Inari’s revenue in 3QFY6/19 declined by 15% on-quarter to RM256mil due to lower sensor product demand and radio-frequency (RF) tester utilisation.
It estimated the group’s RF utilisation fell from 60% to 50% on-quarter. Meanwhile, EBITDA margin also fell 2.4% pts to 25.1% in 3QFY19 due to changes in the sales mix.
Overall, the group’s core net profit fell by 31% on-quarter after adjusting for one-off items such as RM428,000 inventory write-down.
Inari’s 9MFY19 revenue fell 18% on-year due to lower sales from both Malaysia and Singapore markets, which fell 13% and 20% on-year, respectively.
The group attributed the sales decline to lower sensor production volume, changes in the sales mix and lower contribution from its 51%-subsidiary, Ceedtec, following the disposal of operating assets in 4QFY6/18. Overall, Inari’s core net profit fell 22% on-year from RM198mil to RM154mil.
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