INARI: Semiconductor Firm Reports Weaker Q1 Performance, Outlook Revised

A leading outsourced semiconductor assembly and test (OSAT) provider commenced its first quarter of fiscal year 2026 (1QFY26) with a core profit of RM55.1 million, marking a significant 28.8% year-on-year decline. These results fell considerably below both the investment bank’s and the street’s full-year estimates, constituting only 19% and 18% of their respective forecasts. This unexpected underperformance has led to an 11-19% cut in the FY26-28F earnings forecast for the firm, primarily due to reduced radio frequency (RF) sales projections. Despite the weaker earnings, a dividend per share of 1.33 sen was declared for the quarter, an increase from 1 sen in 1QFY25.

Detailed Financials and Operational Challenges

The company’s topline dipped 16% year-on-year, with revenue falling from RM388 million to RM326 million. This decline was largely driven by lower loading volumes across all core segments. The dominant radio frequency (RF) segment, which remained the biggest sales contributor at 66% of total revenue, recorded a substantial 21.2% year-on-year decline to RM198.7 million. Optoelectronics sales experienced only a marginal drop, while the generic segment retreated a sharper 27.9% year-on-year. From an industrial application perspective, the smartphone segment led with 64% of group sales, followed by datacom (16%), automotive (9%), industrial (6%), and generic (5%).

The significant drop in core earnings was further exacerbated by a 32% year-on-year tumble in gross margin, which slipped from 21.5% to 20.3%. The weaker performance is primarily attributed to the realignment of global supply chains due to US tariff policies, coupled with increased onshoring of smartphone manufacturing in China. Adding to the challenges, the 54.5%-owned Yiwu Semiconductor International Corp remained loss-making, contributing RM2.5 million to the overall decline.

Industry Trends and Future Projections

Looking ahead, global smartphone shipments are projected to increase by 3.3% year-on-year in 2025, primarily fueled by robust iPhone sales, according to Counterpoint Research. Apple is anticipated to surpass Samsung in shipments for the first time in 14 years in 2024 and is expected to maintain this lead through 2029. The strong momentum building for the iPhone 17 series across regions is expected to drive a 10% year-on-year expansion in iPhone shipments for 2025. This growth is spurred by a replacement cycle reaching its inflection point, as consumers who purchased smartphones during the COVID-19 period are now entering their upgrade phase, alongside lower-than-expected tariff impacts globally. However, smartphone shipment growth is projected to moderate in 2026 due to significant component price pressures. Apple also plans to release its first foldable iPhone by the end of 2026, with a flip-style iPhone expected in late 2027.

Analyst Rating Update

Following the disappointing 1QFY26 performance and the downward revision of earnings forecasts, the investment bank has downgraded its recommendation on the firm to Neutral. The target price has been revised to RM2.29, with valuation rolled forward to FY27F.