Inari on track to register strong revenue growth
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Inari on track to register strong revenue growth
Inari on track to register strong revenue growth
By [url=http://www.theedgemarkets.com/my/article/inari-track-register-strong-revenue-growth?type=Latest News#][/url]Affin Hwang Capital / The Edge Financial Daily | June 15, 2016 : 11:13 AM MYTInari Amertron Bhd
(June 14, RM2.95)
Maintain buy with an unchanged target price of RM3.54: Inari Amertron Bhd appears to be on track to register a revenue growth of 20% over the previous quarter. This is underpinned by a combination of reasons: i) a low base in March 31, 2016 (3QFY16) where revenue fell 26% quarter-on-quarter (q-o-q); and ii) strong shipments by a South Korean customer. The recent management outlook and guidance on analysts’ 2Q results call from Broadcom Ltd, a key customer, further confirm our view of Inari’s improved outlook in the coming quarters.
According to Broadcom president Hock Tan, the wireless division is expected to see a mid-20% sequential revenue growth in the upcoming quarter. He further elaborated that strong revenue growth should further sustain in the following quarter as it would capture the full ramp of its North American customer.
However, apart from the usual strong seasonal ramp, the next-generation phones are also expected to see higher radio frequency (RF) content per device. This is consistent with the growth that we are projecting for Inari’s RF segment.
We expect the number of Inari’s RF testers to hit 680 units by September (from the present 609 units). This represents a 61% increase from the 422 units as at end-June 2014. Thus far, capacity has mirrored Broadcom’s own expansion, although we understand that the capacity still lags behind Broadcom’s own wafer-fab expansion, which has effectively doubled over the same period.
Hence, while Inari is ready to capture the growth that Broadcom is expected to experience, we believe that Broadcom will still need to rely on its other contractors to fulfil capacity in the coming quarters. We also understand that Broadcom has qualified a number of new contractors to fulfil this requirement. While this may appear to be a risk, we nevertheless believe that there is sufficient growth opportunities for Inari.
Moreover, the completed renovation of Plant 21 by end-June 2016 should pave the way for further expansion ahead. Approximately 50 new testers are expected to be installed as part of Phase 1 to cater to Broadcom’s wired division. These new products would likely encompass network switches used in the cloud and data-storage space.
Broadcom has a leading market share in network switches and this market segment is expected to continue to remain exciting in the years to come as the technology-upgrade cycle plays out. The key drivers behind the upgrade cycle lie in the necessity to cater for improved performance as servers and storage become faster, while 4K resolution becomes more mainstream. From a cost perspective, with a rapidly declining average selling price for switches, there should also be impetus for a transition from 10 Gigabit Ethernet (GbE) to 25GbE. Finally, a large-scale roll-out of cloud servers would further accelerate the adoption of this technology upgrade. — Affin Hwang Capital, June 14
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