PETALING JAYA: The biggest earnings risk for suppliers like Inari Amertron Bhd
largely comes from the negative impact of potential higher retail prices for smartphones in the United States and softer consumer spending globally given the economic slowdown.
Meaningful forward guidance during the upcoming first quarter 2025 (1Q25) earnings season is likely to be scarce, as visibility hinges on developments in the tariff front, especially between the United States and China, said Hong Leong Investment Bank Research (HLIB Research).
Inari is supported by its sizeable net cash buffer of about RM2.2bil.
The research house cut its financial year 2025 (FY25) to FY26 earnings forecasts for Inari by 21% and 8%, respectively, reflecting lower utilisation rates and lower margin assumptions for the radio frequency or RF segment. Its revised earnings forecasts are 18% to 23% below consensus.
Despite lowering its FY25 to FY26 earnings forecasts, HLIB Research noted the technology sector stock still trades at a compelling valuation of 18.6 times the 2026 price earnings (PE) ratio (ex-net cash and interest income), a level not seen since post-Covid multiple expansion.
Its revised target price for Inari is RM2.10 a share, pegged to 25 times the 2026 PE ratio (excluding interest income), plus RM2.2bil net cash.
Inari closed unchanged at RM1.71 yesterday. The key downside risks cited in its call are higher-than-expected tariff rates leading to a sharper decline in smartphone unit sales.
Inari derives around 60% of its revenue from the RF segment, with Customer B as its key client.
There is no direct impact from US tariffs as these RF chips are ultimately bound for Electronics Manufacturing Services plants in China and India for the final assembly of a leading US smartphone brand.
There is also no direct tariff impact for Inari’s optoelectronics segment (~30% of revenue), aside from a softer end market caused by a slowdown in the global market economy.
Inari’s optoelectronics division mainly serves the data communication, automotive, and industrial markets.
For now, the worst-case scenario (very punitive tariff rates on China) has been averted given the temporary exemptions on smartphones, providing perhaps one to two months of reprieve before any potential tariffs under Section 232 hit.
This brings some near-term relief to the supply chain, even though a 20% fentanyl-related tariff on Chinese imports still stands.
Its base case scenario assumes that eventual tariffs on chips and electronics will be imposed under Section 232 (likely to be 25%), which could drive a 12% to 13% increase in smartphone retail prices in the United States if tariff costs are fully passed on to the consumer.
