Inari’s customer Broadcom’s potential RF content increase in iPhone 7 a beneficial devt

KUCHING: Inari Amertron Bhd’s (Inari) single largest customer Broadcom is believed by RHB Research Institute Sdn Bhd (RHB Research) to have managed to increase its radio frequency (RF) content in the latest iPhone 7 lineup, which if proven to be true, could ultimately benefit Inari given the group’s niche focus on RF-related outsourced semiconductor assembly and testing works for Broadcom.

While RHB Research cannot ascertain the quantum of increment, the research house noted that Broadcom’s (via Avago) front-end module has increased to two units (from one unit in the iPhone 6S series) on both basebands.

“We also saw the inclusion of its film bulk acoustic resonator hexaplexer module to support multiple- band carrier aggregation,” the research house said.

R H B Research believed this willultimately benefit Broadcom’s outsourcing partners within the wireless RF space.

The research house saw Inari as one of the prime local beneficiaries, given the group’s focus on RFrelated semiconductor assembly and testing works for Broadcom.

On a side note, it believed higher RF content per unit of smartphone could help to mitigate risks of a potential slowdown in overall iPhone shipments as early sales indicators have, thus far, been mixed.

“We understand that Inari is currently on track to increase the capacity of its RF division to 800 to 850 units of testers by October,” the research house said.

Outside the RF space, RHB Research lauded management’s move to penetrate into Broadcom’s non-RF division over the medium term.

Based on its channel checks, Inari is looking to replicate the group’s existing RF chips testing model for Broadcom’s server

chipset division.

“We understand that the group procured three to six units of testers for this new division with the intention to ramp up its capacity to close to 60 units in 12 to 18 months’ time,” the research house said.

Forecast-wise, RHB Research raised its FY17-19 earnings per share (EPS) by 3-10 per cent to factor in likely higher orders under Inari’s RF division from Broadcom over the immediate term following new design wins in the latest iPhone line-up.

Pegging an unchanged 15-fold 2017 price-earnings (P/E), RHB Research’s fully-diluted Target Price now stood at RM3.06 per share from RM2.85 per share previously.

Given the limited downside and with the forex theme likely to remain on hold as the research house anticipated US dollar to trade at RM3.80-3.90 for 2017, RHB Research maintained its ‘neutral’ stance.

RHB Research’s corroborative discounted cash flow ( DCF) approach derived a fair value of RM3.14 per share, which the research house deemed as reasonably close to its revised target price.