INARI: Revised Outlook Lifts Target Price Amidst Operational Adjustments

Investment Bank TA Securities has raised its target price for the company to RM1.70, up from RM1.50, while maintaining a “HOLD” recommendation. This adjustment reflects an improved future outlook for earnings, despite a period marked by operational challenges and strategic transitions.

Performance Review and Forecast Revisions

While the core profit for the financial year FY25 saw a 14% year-on-year decline to RM261 million, TA Securities has revised its forward-looking earnings forecasts upwards for FY26F by 7.4%, alongside a 7.0% increase in revenue projections. This more optimistic view of future performance is partly underpinned by a more lenient resolution regarding potential US tariffs on smartphones, coupled with the company’s focus on operational efficiencies and its customers’ commitment to US-based manufacturing. These factors are expected to bolster the firm’s financial trajectory.

Operational Headwinds and Strategic Adjustments

The company is navigating several operational headwinds, including a notable softness in the utilization rate of its RF business, as indicated by declining trends. The high dependency on a major customer and the overall smartphone market continues to present risks, with potential order reductions capable of impacting performance significantly. The normalisation of RF revenue growth, primarily due to market saturation and the anticipation of 6G technology, necessitates a proactive approach to secure new customers and product lines to sustain historical growth. Furthermore, the recent acquisition of a 25.5% stake in Lumileds, though projected to boost FY27F revenue by 19%, introduces a potential drag on earnings, estimated to be up to 25%, from Lumileds’ losses. Efforts to onboard new customer contributions have been slower than anticipated.

Future Outlook and Investment Rationale

Looking ahead, the future outlook is cautiously optimistic, driven by potential for above-average growth if AI-enabled smartphones trigger a new replacement cycle. The company is strategically positioned to benefit from global supply chain relocation initiatives, although accelerating new customer contributions remains a critical focus area. TA Securities’ upward revision of future earnings and revenue forecasts signals a degree of confidence in the company’s ability to navigate current sector-specific challenges through strategic adjustments and disciplined operations. The revised target price of RM1.70 is based on a target P/E of 21.5x and FY27F EPS, valuing the firm at a premium to its OSAT peers, justified by its robust liquidity, less volatile earnings profile, and strong track record.