Inari Amertron Berhad’s (INRI) 1HFY24 core earnings of MYR175.6m (-13.6% YoY) was a slight miss, undermined by margin compression due to additional input costs (electricity, additional staff and machinery for new product development), despite a flattish topline.
RHB Investment Bank (RHB) said in their Malaysia Results Review note today (Feb 27) has trimmed Inari’s FY24F by 5% on a more conservative margin assumption.
Overall, they are still hopeful for a better FY24, driven by new programmes and the maiden contribution from its new JV in China.
RHB maintains BUY, with new MYR3.58 TP from MYR3.62, 13% upside and c.3% FY24F (Jun) yield.
A slight miss
1HFY24 revenue of MYR798bn (+2.4%) and core earnings was a minor miss at 47.2% and 47.8% of our and Street full-year estimates due to the weaker-than-expected margin, in view of the seasonally stronger 1H from the ramp-up of certain premium smartphone brands.
Topline was flattish (+2.4%YoY) with less exciting gadget sales, cushioned by the increase in content and stronger USD against MYR.
However, additional fixed costs from new hiring and set up costs for new product development, coupled with the glitches in electricity supply undermined 1HFY24 EBITDA margin to 26.5% (from 33% in 1HFY23).
A second interim DPS of 2.2 sen was declared (2QFY23: 2.2 sen), ex-date on 13 Mar.
Forecasts and ratings
RHB cuts their FY24F earnings by 4.9% on weaker margin, resulting in a lower MYR3.58 TP, based on an 31x CY24FP/E (+1.5SD from its 5-year mean) and a 2% ESG premium.
Despite the unexciting smartphone market/sales, INRI’s stickier earnings profile is expected to contribute positively in FY24F given i) Its premium product exposure that fared relatively well, and ii) diversification strategy to other products and clients.
Key downside risks are weaker-than-expected 5G smartphone orders, nonrenewal of contracts, low production yield, and unfavourable FX movement.
