INARI: Technology Sector Grapples with Weakness; Analysts Project Upside Potential

A key player in the outsourced semiconductor assembly and test (OSAT) sector recently navigated a challenging half-year, with its core profit for the first half of fiscal year 2026 (1HFY26) experiencing a 16.8% year-on-year decline to RM115.5 million. Despite the contraction, the results were broadly in line with both the investment bank’s and street’s full-year estimates, indicating market expectations had largely factored in the headwinds. Analysts from TA Securities have issued a ‘BUY’ recommendation, setting a target price of RM0.25, reflecting potential upside despite current market conditions.

Performance Review Amid Headwinds

The second quarter of FY26 saw revenue dip 12% year-on-year, falling from RM349 million to RM306 million. This was primarily attributed to lower loading volumes across all core segments, with the radio frequency (RF) segment — the largest contributor at 61% of sales — experiencing a significant 21% year-on-year decline to RM187.1 million. Sales from the generic segment also retreated 11% year-on-year to RM18.5 million. On the other hand, optoelectronics sales improved by 11.5% year-on-year to RM101.2 million. Core profit for the quarter softened marginally to RM60 million from RM61.5 million, as gross margins compressed from 23.5% to 23%. Unfavorable foreign exchange movements also contributed to the weaker performance.

Market Outlook and Key Challenges

The global smartphone market faces a softening outlook for the current year, following a 2% growth in 2025. This deceleration is largely driven by ongoing DRAM and NAND shortages, coupled with rising component costs. Memory chip makers are increasingly prioritizing AI data centre demand, potentially diverting resources away from smartphones. Nevertheless, the company’s key customer, Apple, is anticipated to maintain relative resilience due to its robust supply chain capabilities and premium market positioning. Upcoming events, including a speculated new budget iPhone, iPhone 17e, and updated iPads and MacBooks, could offer some support, potentially mitigating broader market softness.

Despite the immediate challenges and a previously revised earnings per share (EPS) forecast for FY26-28F, TA Securities maintains a positive long-term view. The firm has set a target price of RM0.25, representing a significant premium over the last traded price of RM0.20. The ‘BUY’ recommendation suggests confidence in the company’s ability to navigate the cyclical nature of the semiconductor industry and capitalize on future growth opportunities, particularly from resilient key customers and potential new product cycles, offering compelling upside potential for investors.