INARI AMERTRON BHD

By AMBank Research Rating: Hold Target Price: RM2.72

OVER the weekend, there were numerous reports, including from Reuters and The Guardian, saying that Apple’s launch of iPhone 8 and 8 Plus around the world received lukewarm response relative to previous launches.

AMBank Research believes this indicates that consumers are holding back purchase for iPhone X, which is scheduled for release in November.

This is also verified by an article from Quartz, which said that most reviewers recommended waiting for the iPhone X.

“In other words, we believe expectations vis-à-vis Inari’s radio frequency (RF) testing revenue remain intact despite the reports,” it said.

“On another note, several online reviews pointed out that the features and functionality upgrades of the three new models, compared to iPhone 7 and 7 Plus (the Sevens), are minimal. While this is true to a certain extent, the new iPhone models offer significant upgrades for models before the Sevens,” it added.

Data from David Smith, an influential independent iOS developer, shows that models prior to the Sevens accounted for more than 80% of iPhone device share as of Sep 22, 2017.

This implies that the triviality of the functionality upgrades has little impact on the demand for the new models, as replacements could still come from the bigger pool (more than 80%) of older generation iPhone users, AMBank Research said.

“In addition, we note that the 6 and 6S models currently occupy the highest percentage of iPhone device share.

“This means that the launch of the anniversary phone (iPhone X) is timely, coinciding with iPhone’s average device age (or replacement cycle) of 2-3 years,” the research house said.

“All-in, we believe the additional model (iPhone X) introduced on top of the two conventional lines, coupled with new features such as wireless charging and TrueDepth camera (3D depth sensing capability) would underpin Inari’s earnings growth of 35% in FY18 forcast,” AMBank Research added.

However, despite the bright prospects, AMBank Research kept its hold recommendation on Inari as the stock is trading near its fair valuation.