Inari well positioned to benefit from growth in RF segment

KOTA KINABALU: Inari Amertron Bhd (Inari) has been viewed as well-positioned to benefit from growth in the radio frequency (RF) segment, while the group’s capacity expansion is expected to fuel multi-years of growth.

According to Affin Hwang Investment Bank Bhd (Affin Hwang), demand for premium RF filters remains strong, despite the growth saturation in the global smartphone market.

“Driven by an increase in bands and the complexity of LTE coverage expansion, RF should remain robust, given that Inari’s customer Broadcom, is a major player in the RF segment,” the research firm said.

“We like Inari as it is well positioned to benefit from growth in the RF segment.”

Being one of the largest RF testing houses in the region, Affin Hwang believed Inari stands to benefit from 5G rollout, which should underpin better demand for premium RF filters.

Affin Hwang highlighted that Inari completed the expansion of the group’s P13 plant in May 2018, which will add an additional 120,000 square feet (sq ft) of floor space, pushing its floor space capacity to 340,000 sq ft.

The research firm further highlighted that Inari plans to consolidate the group’s RF business at this new site from another location, which will result in some rental cost savings.

“Inari also commenced construction of its P34 plant in the first quarter of 2018 (1Q18), to be built over four phases.

“Phase 1 alone will provide 220,000 sq ft of production floor space.”

Affin Hwang went on to note that management is targeting two customers to fill the new capacity, with one being a new customer.

“At present, Inari is undergoing qualification for production of mini LEDs (targeting large scale production for electronic billboards in China) and a VCSEL recognition chip, which we understand will be for smartphone-related use.”

This, in the research firm’s view, will reduce the slack from Inari’s IRIS IR-related business, which has softened.

Looking ahead, Affin Hwang forecasted financial year 2018 (FY18) capital expenditure (capex) of up to RM160 million, depending on the new business segments.

“The new businesses undergoing qualification should they materialise, would provide additional earnings catalysts ahead.”

Overall, the research firm was positive on these new developments as it will help reduce single customer exposure to Broadcom, which accounts for more than 70 per cent of revenue, and creating new growth drivers for the group.