Inari’s factory acquisition provides flexibility to expand RF production

by **Cals** Mon 22 Feb 2016, 23:30

Inari’s factory acquisition provides flexibility to expand RF production

By AmInvestment Bank Bhd / The Edge Financial Daily | February 22, 2016 : 10:08 AM MYT

This article first appeared in The Edge Financial Daily, on February 22, 2016.

[You must be registered and logged in to see this image.]Inari Amertron Bhd
(Feb 19, RM3.30)
Maintain buy with an unchanged fair value of RM3.69: Inari Amertron Bhd said last Thursday that it had entered into an agreement to acquire a piece of leasehold industrial land together with a factory building in the Bayan Lepas Free Trade Zone, Penang, for RM22.8 million.

With a cash pile and deposits of RM270 million in the first quarter of financial year 2016, the property, plant and equipment purchase can be financed easily.

The new facility will effectively increase the total gross floor area of its current radio frequency (RF) manufacturing facilities in Penang by 70% from 283,000 sq ft to 500,000 sq ft.

This is a positive as it provides Inari with the flexibility to either expand its RF production or secure new business opportunities in the near future from its key client, Avago Technologies Ltd.

Inari continues to boost the number of testers in its P13 facility expansion for its high-margin RF production, which is expected to increase from the current 609 testers to 850 testers by October (+63% year-on-year), filling up most of the capacity of the P13 facility.

Despite expectations of slower semiconductor growth in 2016 — the forecast by the World Semiconductor Trade Statistics at 1.4% (previously 3.1%) and the reported slowdown of the top two smartphone makers — we opine that demand for Inari’s services remain intact.

This is because Avago’s superior RF chip technology provides it the option of expanding its customer base if necessary. Previously, it was unable to meet demand from China-based phone manufacturers.

We anticipate two potential rerating catalysts for Inari: spillover business opportunities following Avago’s purchase of Broadcom Corp (to be finalised in April) and potential new service contracts for Inari’s Batu Kawan facility in Penang.

Recall that last year, Inari’s second key customer Osram announced its plan to build a RM4.6 billion light-emitting diode chip plant in Kulim, Kedah. — AmInvestment Bank Bhd, Feb 19