In a recent note, TA Securities said Inari recorded a 12.5% decline in year-on-year (y-o-y) revenue to RM1.34 billion in the financial year ended 2023 (FY2023) and a 17.3% drop in core net profit to RM320.5 million.
Inari, seen as a bellwether for local semiconductor-linked stocks, reported a 23% fall in net profit for the fourth quarter ended June 30 (Q4 FY2023) as an industry slowdown and higher energy costs dragged down its revenue.
For the quarter, the country’s leading outsourced semiconductor assembly and test (OSAT) services provider posted a lower net profit of RM66.31 million from RM86.22 million a year ago.
The research house said Inari’s weak performance reflected the continuous downcycle in the semiconductor industry as shown by the across-the-board y-o-y drop in all its segments including radio frequency (RF – 14% drop), optoelectronics (9.8%), and generic (12.5%).
Based on its optimism on Inari’s RF segment and progress of new projects, TA Securities upped its earnings estimates by 2.7% for FY2024, 6.1% for FY2025 and 7.2% for FY2026 upon raising its sales forecast by 1.7% for FY2024, 3.8% for FY2025 and 4.6% for FY2026.
Post earnings revision, it projects a growth in earnings at 22.5% for FY2024, 20.2% for FY2025 and 7.9% for FY2026.
TA Securities deemed the RM3.50 target price as fair considering Inari’s growth prospects under the 5G theme, traction with customer diversification efforts, above industry average profitability, expansion plans, a robust balance sheet, and the potential of optical communications and automotive to pick up.
“Given the stock’s improved risk-reward potential, we upgraded the stock to buy.”
Key downside risks include geopolitical tensions impacting economic growth and supply chain disruptions, strengthening of the ringgit against the US dollar, surge in commodity prices, and material shortages, it said.
TA Securities further said it favours the semiconductor firm because it’s the closest proxy to 5G adoption, high responsiveness to the market demand and its significant expansion in market outreach to upgrade from “market perform” to “outperform”.
At 3.30pm, Inari’s shares were two sen or 0.63% lower at RM3.13, giving it a market capitalisation of RM11.7 billion.