INARI Earnings Preview: Sustained Growth Forecasted in Q2FY24 But Caution for H2FY24 RF Downturn

Driven by developments in AI, Inari Amertron Berhad has seen its stock price increase by 11% since last October. The company is expected to release its Q2FY24 earnings report on February 26th. Several analysts anticipate positive performance for this quarter.

Based on the analyst rating feature from Moomoo, ratings have been issued by 18 market analysts. Of these, 72% have assigned a Buy rating, and 28% suggest a Hold position. The consensus target price stands at RM3.44, with the peak target price reaching RM4.17, indicating a potential upside of 31% from the present trading price. The detailed ratings from the analysts are as follows.

INARI plays a crucial role as an OSAT for Broadcom's RF filter line, catering to flagship devices from Apple and Samsung. The company revealed that margins for Q1FY24 were below projections due to a one-off RM5mn power outage and subpar yields from the latest RF filter packs for the iPhone 15.

According to Kenanga Research, facing a new replacement cycle, the smartphone market expects a 2024 rebound after US brand consolidation reduced inventories. Supply chains should prepare for quick production increases if demand outpaces forecasts. INARI's RF segment is projected to improve sequentially in Q2FY24, following efficiency enhancements from the prior quarter.

Moreover, the race for AI leadership among tech giants is set to boost chip demand. Smartphone maker Apple is expected to reveal a significant AI breakthrough in its 2024/2025 models to catch up with rivals like Microsoft and Google, as 'Siri' becomes less competitive. The trend is clear with the Samsung Galaxy S24's success, thanks to its new AI features.

INARI plans to invest RM341 million yearly for two years to expand production, up from RM125 million annually, backed by its strong track record of high returns on equity, instilling confidence in its growth strategy despite potential initial ramp-up challenges.

In the Q1FY24, the company invested RM40 million in machinery and equipment, with an additional RM3 million allocated to constructing buildings and facilities. The total capex for FY24 and FY25 is expected to reach RM641.6 million, substantially exceeding the group's previous annual record of RM184 million set in 2019.

The anticipated slowdown in iPhone EMS production is projected to lead to a decrease in RF revenues during the H2FY24. Concurrently, potential reductions in iPhone orders could adversely affect INARI's operational capacity during the same period. Although INARI is actively acquiring new customers in light of the supply chain's shift to Malaysia and is set to launch its new factory in China starting from the first quarter of CY24, these developments are likely to yield benefits in the medium to long term. The revenue contribution will not be sufficient to offset incoming RF weakness in H2FY24 (H1CY24).