With the downgrade, the research house also lowered its target price (TP) to RM3.25 from RM3.50 previously.
In a note today, it said the downgrade was due to Inari’s first quarter ended Sept 30, 2023 (Q1 FY2024) earnings falling short of expectations.
It said while Inari’s core net profit for Q1 FY2024 was up 31.9% quarter-on-quarter (q-o-q) to RM85.8 million, it was down 14.6% year-on-year (y-o-y) from RM106.25 million in Q1 FY2023, and below the research house’s and consensus estimates of 21.8% and 21.5%, respectively.
“On our end, the results missed (estimates) as the radio frequency (RF) segment’s improved loadings fell short of expectations.”
It noted that historically, Inari typically observes a seasonally stronger first half (H1: July to December) marked by the ramp-up of its RF segment in conjunction with its major US end-customer’s yearly new smartphone line-up.
Nevertheless, TA Securities is optimistic about Inari’s prospects due to the nascent 5G smartphone upgrade cycle, RF content demand, 5G device shift, new product introduction, and China Plus One strategy customer diversification efforts.
Meanwhile, the group has extended the period for utilising proceeds from its 2021 private placement exercise in 2021 by another 24 months, using RM378.5 million out of the RM1 billion raised for capital expenditure, acquisitions and investments.
Meanwhile, MIDF Research as maintained its “neutral” call on the stock with an unchanged TP of RM3.04.
It said that Inari’s financial performance has met expectations despite the industry downturn, performing relatively well compared to its peers.
“We also keep our recommendation at this juncture pending further divulgement on the development of its 54.5%-owned subsidiary Yiwu Semiconductor International Corporation (YSIC).
“This would also help to reduce the risk of dependency on its major customer for the RF product,” it said.
Kenanga Research has kept its “outperform” call on Inari with a TP of RM4.17, stating that Inari’s Q1 FY2024 results met expectations. It remains optimistic on the company’s growth prospects, underpinned by the resilient demand for its RF filters.
“The increased demand for RF filters can be attributed to additional frequency bands implemented in the latest US smartphones.
“Moreover, Inari is making encouraging strides in its recent business ventures, including power module packages, memory chips, optical transceivers, and the building of a new factory in China.
“Many of these products are currently in advanced qualification and sampling stages, and poised to make a positive impact in FY2024 and FY2025 as they gradually ramp up,” it added.
Inari provides semiconductor packaging services such as back-end wafer processing, assembly and testing for global customers in RF and in optoelectronic products.
At 4.35pm, Inari’s share price was down 10 sen or 3.3% to RM2.90, giving it a market capitalisation of RM10.7 billion.