Inari to see higher revenue from RF division
KUCHING: Inari Amertron Bhd (Inari) is expected to garner higher revenue from its radio frequency (RF) division, backed by rising demand for the product in smartphones, which is needed to facilitate the transition from 4G LTE to 5G.
AmInvestment Bank Bhd’s research arm (AmInvestment) noted that it has revised its financial year 2019 forecast (FY19F) and FY20F earnings, marginally upwards by 4.1 and 4.2 per cent respectively, factoring in a slightly higher utilisation rate for its RF segment.
“We believe that the segment will continue to grow sturdily on the back of rising RF content in smartphones, which is needed to facilitate the transition from 4G LTE to 5G,” it opined.
Furthermore, the research team pointed out that in the medium term, Inari could also see its revenue boosted by new products commissioned by its German customer.
It noted that these new products include fine-pitch LED (less than two mm pixel pitch) used for billboards and other public display panels; and health sensor as well as vertical-cavity surface-emitting
laser (VCSEL) components for both 2D and 3D sensing applications.
“We believe meaningful earnings contributions from the new products will start showing in six to nine months’ time.
“For now, raw materials are being consigned to Inari for processing. After three to six months of observational period, if volume picks up, Inari would start purchasing raw materials for its customer.
“This allows the group to book higher revenue due to a higher bill of materials (BOM). The new products, if fully ramped up, can potentially generate more revenue than its bread-and-butter RF business,” AmInvestment opined.
Aside from that, the research team said, Inari has also reaffirmed plans to consolidate operations to improve efficiency.
It explained, “To this end, the group is relocating its Philippine operations in Paranaque (PQ) to existing plants in Clark Field (CK). The move will allow its whollyowned Amertron Inc to reap a fair amount of cost savings as CK plants are situated in Clark Freeport Zone, which entitles investors to certain tax incentives.
“In addition, the group also intends to relocate operations in its P8 plant to P13 as both are producing RF components.
“Collectively, we believe the group will be able to save labour cost and rental expenses of more than RM500,000 per month (circa two per cent of FY19F earnings) from the exercise.”
Overall, AmInvestment believe Inari is set to register a robust earnings compounded annual growth rate (CAGR) of 31 per cent from FY17 to FY20F, riding on three core pillars.
They are RF, which benefits from the transition to 5G and rising content per device, laser devices, which is boosted by increasing biometric and augmented reality (AR) applications in smartphones, and LED, which rides on rising demand for high-resolution billboards in shopping malls.
It maintained a ‘buy’ call on the stock.