Inari Amertron expected to post flattish 2QFY16 earnings

by **Cals** Mon 15 Feb 2016, 19:53

FROM THE EDGE

[size=28]Inari Amertron expected to post flattish 2QFY16 earnings

By Affin Hwang Capital Research / The Edge Financial Daily | February 15, 2016 : 10:04 AM MYT

This article first appeared in The Edge Financial Daily, on February 15, 2016.

Inari Amertron Bhd
(Feb 12, RM3.18)
Maintain buy with an unchanged target price of RM4.12: Inari Amertron Bhd is expected to release its results for the second quarter ended Dec 31, 2015 (2QFY16) on Feb 23.

Negative surprises are unlikely despite the seasonally weaker quarter and a slowdown in demand by a major smartphone manufacturer from December 2015. We anticipate a flattish set of earnings in 2QFY16 (1QFY16 core profit: RM42 million).

Meanwhile, any positive surprises will likely arise from favourable strengthening of the US dollar vis-à-vis the ringgit.

We note that during the final quarter of 2015, the ringgit depreciated some 5% against the US dollar.

On the whole, we believe its first half of FY16 (1HFY16) results will still fall within our expectations, accounting for some 40% of our full-year forecast.

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Note that Inari has historically posted a stronger 2H and, in particular, a robust 4Q coinciding with the previous launches of a major phone manufacturer. We expect the same in 4QFY16.

Coinciding with weakness across the global smartphone supply chain, we do not believe that Inari will be spared from a production slowdown in 3QFY16.

Our checks indicate that inventory levels at Inari are being wound down, which will likely lead to weaker radio frequency revenue (about 51% of group revenue). The seasonally weak Chinese New Year holiday period has also not helped.

Nevertheless, moving into 4QFY16, we believe that orders will resume for a new major smartphone launch and thus, we leave our FY16 estimated earnings per share intact.

Inari’s share price has corrected some 19% from its peak in the final quarter of 2015, coinciding with the guidance of a slowdown by a major smartphone manufacturer.

The price pullback, in our view, fully reflects a weak 3QFY16 and is also consistent with the price correction (stock prices down an average of 20% to 30%) across key vendors and suppliers of this major smartphone manufacturer. — Affin Hwang Capital Research, Feb 12
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