PETALING JAYA: Despite key downside risks, Inari Amertron Bhd’s core radio frequency (RF) segment is on an expansion mode.

       This segment accounted for 61% of the company’s nine months financial year 2022 (FY22) revenue and analysts are bullish of its growth prospects going forward amid challenges.

       TA Research, which is recommending a “buy” call on the stock with a target price (TP) of RM3.60, said Inari’s core RF segment remains in expansion mode ahead of a major United States end-customer’s upcoming 5G smartphone line-up.

       This includes the addition of 60 testers over existing 1,200 testers. Notwithstanding weakness in global smartphone unit shipments, the RF segment’s loadings is expected to increase, driven by the higher RF content demanded within 5G smartphones and the ongoing migration to 5G smartphones.

       As for the group’s other business segments, it said during the company’s third quarter (3Q22) briefing, the management shared that demand would remain strong across the board for its optical communications (driven by rapid deployment of higher speed fibre products), automotive (with good loadings for optocoupler products), industrial (with demand exceeding supply), and generic.

       That said, management also cautioned of challenges. These include continued raw material supply constraints, particularly within the automotive and generic segment with procurement still hand-to-mouth.

       Meanwhile at Amertron Technology Kunshan (ATK), Inari’s operations in China, it shared that its shipment schedule in April 2022 was disrupted by government mandated lockdowns amid China’s stringent zero-Covid policy.

       With ATK’s operations mostly locked down in April 2022, it resulted in total revenue lost for the month.

       However, the research house highlighted that ATK’s operations had fully resumed on May 6 and it targets to recover the capacity lost in April 2022 in the remaining months of 4Q22 via alignment with customers to maximise loadings and building buffers.

       With regards to Inari’s memorandum of understanding with China Fortune-Tech Capital Co Ltd, Inari is at the closing stage in finalising the terms of the definitive agreements, TA Research noted.

       CGS-CIMB Research, which is reiterating its “add” call on the stock with a TP of RM3.40, said it sees an earnings-accretive outsourced semiconductor assembly and test joint venture in China, stronger-than-expected RF chip demand, consensus earnings upgrades and new customer wins as potential re-rating catalysts for the stock.

       “Slowing demand for 5G smartphones, ringgit appreciation versus the greenback, and delays in new customer diversification are key downside risks to our ‘add’ call,” it noted.

       UOB Kay Hian Research said despite material constraints and softer seasonality, Inari’s key segments are expected to remain resilient in FY22.

       The new business expansion, which would be carried out at its P55, P21 and P34 plants, could contribute meaningfully starting from the second half of 2022.