Thursday, August 21, 2014

Inari ... Current Valuation Is EXPENSIVE !!


With the ongoing orders for the group’s RF products due to resilient demand for smartphones and tablets, the group is believed to utilize part of its proceeds from its rights issue with warrants amounting to between rm100.3 million and rm133.2 million to expand its RF assembly capacity and repayment of bank borrowings.

Assume another RF plant pos the announcement of its new land acquisition at Batu Kawan Industrial Park … the group’s net group could see additional rm25 million on a utilization rate of about 85%.

Expect Ametron to (Inari acquired Ametron Global Inc in June 2013) to post decent earnings. Also expect its 51% owned subsidiary Ceedtec Sdn Bhd to see double digit growth in financial year 2015 ending June 30 (FY2015) (from a low base), with the new pipeline of products to be introduced.

While the group’s earnings prospects remain resilient with higher visibility post its Main Market Listing, in terms of valuation, however, Inari is currently (Aug 2014) of 16.0 times, which is a 24% premium to the FBM Small Cap forward PER of 12.9 times and only a mere 8% discount to its peers’ forward PER.

Including all parameters, there is not much capital upside from 19 Aug 2014.

Meanwhile Inari will report its results for the fourth quarter ended June 30 of financial year 2014 on Aug 26 2014.

The group is on track to deliver another set of record earnings in FY2014. This is largely underpinned by the consolidation of Amertron’s accounts in FY2014 and its ability to leverage on its Avago strengthen in the RD space. In addition management guided that Amertron’s margins have improved to 6% to 8% versus 4% in mid 2013.

To recap, Inari proposed to undertake a 1 for 8 rights issue which could potentially raise up to rm133.2 million. With Inari running at its full manufacturing capacity at its full manufacturing capacity due to the increasing demand from the RF segment, the group has plans to expand its current manufacturing capacity. Management intends to utilize rm60 million to rm80 million of the proceeds from the proposed rights issue to fund its expansion plan, which includes the acquisition of a piece of land and a manufacturing plant.

In view of the expansion plan, do not expect the group to pay up to 40% of its FY2014 earnings as dividend.

Its prospect remained positive …

Key risks include a slowdown in global demand for smart devices, rapid erosion in average selling prices, loss of customer base and introduction of new technology.

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