Inari's core earnings in 1HFY21 of RM179mil beat RHB's and consensus full-year estimates at 71.4% and 69.1%, despite expectations of a weaker 2HFY21, said RHB.
The positive deviation was owing to the higher-than-expected volume loadings and margins from its radio frequency business, which saw strong demand given the increase in content for 5G phones and lower effective tax rate.
"The strong performance has everything to do with the rising adoption of 5G smartphones, which will continue into next year, which will then translate into higher loadings for Inari," said the research house.
It added that the existing contract between Inari's customer and a US-brand smartphone runs into mid-2023, alleviating concerns over losing markt share to Qualcomm's fully integrated 5G antennas and modern solutions.
RHB increased FY21-23 earnings growth estimates by 16% to 12% after imuting stronger volume loadings and margins for the RF business.
Its target price increased to RM4 after ascribing a higher FY22 price-earnings of 40x from 37x.
"We believe our target P/E is fair, as Inari is a prime beneficiary of 5G technology which is poised for mid-term structural growth, coupled with unswaying market interest in the technology sector," said RHB, while reiterating its "buy" recommendation on the stock.