DEVELOPMENT & VIEW

• Another strategic acquisition after Amertron? We maintain our Neutral recommendation on Inari with an unchanged target price of RM2.13. This is pursuant to the group’s announcement on the joint acquisition of Lumiled. We view the development positively as it will lead to larger multi-country production facilities for the group with the ability to serve a wider customer base globally. However, we are unable to comprehend the extend of the potential earnings accretion given the lack of information on the future turnaround plan for Lumiled at this juncture. We understand that the latter is currently loss-making. It will depend on how fast Inari and its partner Sanan can turn around Lumiled. That being said, the acquisition is a reminiscence of Inari’s foray into the optoelectronic segment via the acquisition of Philippines-based Amertron Inc (Global) Ltd in 2013.
• Jointly acquiring Lumiled. Inari and Sanan Optoelectronics (Sanan) entered into a share purchase agreement to jointly acquire all the shares in Lumileds International, which has manufacturing presence in China, Singapore and Malaysia, for a total enterprise value of USD239.0m million or RM1,027.7m to be satisfied wholly in cash. The amount has yet been adjusted for net debt and net work working capital adjustment. A special purpose vehicle will be incorporated in Hong Kong where it will be co-owned by Sanan (74.5%) and Inari (25.5%).
• In addition, Inari and Sanan have agreed to inject a further estimated USD41.0m or RM176.3m into the SPV for working capital Purposes. This will bring the total investment outlay for the Proposed Joint Acquisition and estimated working capital to USD280.0m or RM1.2b. To sum up, the total investment outlay for Inari will equate to RM307.0m of which RM262.1m is the purchase price while the remainder RM44.9m is the estimated working capital.
• Lumileds International’s core business involves the development, manufacturing, and sale of LED products and solutions for automotive lighting, camera flash, and specialty illumination end markets. In the automotive sector, it serves many global automotive lighting manufacturers, with long-term stable partnerships. In camera flash, it mainly provides LED modules for mobile phone flash applications. In specialty illumination, Lumileds International’s products are characterized by high luminous efficacy and high colour rendering, making them widely applicable in premium settings such as shopping malls, stadiums, and racetracks. Lumileds International offers both standardized and customized product solutions tailored to the diverse needs of different customers and applications, ensuring comprehensive fulfilment of client requirements.
• A formidable partner. We view that Sanan is a strategic partner for Inari. It is China’s largest LED epitaxial wafers and chips producer. It produces over 23m epitaxial wafers and 300b LED chips annual, which is about 58% of the total production of China. One of the notable recent achievements includes the supply of Samsung’s microLED smartwatch chips. Sanan is also listed on the Shanghai Stock Exchange with annual revenue of RMB16.1 billion for the financial year ended 31 December 2024 and a market capitalization of approximately RMB60b or USD8.4b as at the date of this announcement.
• Palatable price tag. The purchase price was arrived at after taking into consideration the net assets of unaudited consolidated financial statements as at 31 December 2024 of Lumileds International amounting to USD210.0m and the indicative market valuation of USD287.0m for 100% equity interest in Lumileds International prepared by JZ (Shanghai) Assets Appraisal Co. Ltd. Note that the amount is subject to adjustment for net debt and net working capital.
• Using proceeds from private placement. The total investment outlay of USD71.4m or RM307.0m by Inari will be funded by the proceeds from the private placement of Inari shares. To recall, On 30 July 2021, the Company completed a private placement with the listing of and quotation for 333.0m Inari Shares at the issue price of RM3.10 per placement share on the Main Market of Bursa Malaysia Securities Berhad with gross proceeds of RM1.0b. The total investment outlay consumes 83.0% of the unutilised balance of the private placement proceeds. The utilisation aligns with the objectives of the private placement, which was intended for acquisition and investment.
• Better customer risk profile. At present, Inari’s optoelectronics business accounts for approximately 30% of the group’s revenue while Radio Frequency (RF) business segments constitute almost two thirds of the group’s revenue. With the acquisition, Inari will be able to expand and enhance its current product portfolio as well as its customer base. This will inadvertently reduce the risk of dependency on its current major customer. On another note, Inari and Sanan may leverage on the various manufacturing base under Lumiled to navigate through the evolving geopolitical and trade environment.
• Lacking the turnaround plan for Lumiled. The acquisition is expected to be completed by 3QFY26 i.e. first quarter of 2026. Thus, the acquisition should have bearing on Inari’s FY26 financial performance. Based on the latest key financial data, Lumiled is currently loss-making. Its’ FY24 and 1QFY25 losses amounted to USD67m and USD17m. Thus, for 4QFY26, we do not discount the possibility that Inari’s profitability could be impacted. However, for FY27, the financial impact would depend on how fast Inari and its partner, Sanan, would be able to turn around the loss-making entity. Thus, given the lack of details, we are keeping our earnings estimates and recommendations unchanged at this juncture. We understand that more details will be divulged during the upcoming 4QFY25 results briefing which is taking place towards the end of August 2025.

INVESTMENT STATISTICS

Source: Company, MBSBR

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