Further earnings upside for Inari

KUALA LUMPUR: Maybank IB Research sees further upside to its earnings forecast for Inari Amertron, following the acquisition of the P-21 plant. 

“Having factored job wins worth RM150mil/RM300mil into our 2017/2018 ending June 30 forecasts previously, we see further earnings upside as Inari populates P- 21, its largest plant, over the next 9-12 month for mass production,” it said on Friday.

It expects Inari’s capex to hit RM150mil/RM200mil in 2016/2017. 

Following the acquisition of the P-21 plant to set up Inari Integrated Systems (IIS), a unit of Inari, the Malaysian Investment Development Authority (MIDA) has granted Inari a RM100mil matching grant to upgrade its P-21 plant and to purchase equipment and machinery. 

This is to power Inari’s next growth engine in the areas of advanced communication chips and die preparation. 

RM20mil of the matching grant will be issued to MIDA in convertible preference shares at 2% dividend per annum, which are convertible into Inari shares at any time within a three-year period, at a price to be determined. 

At Inari’s current share price, this would convert to 0.6% additional shares. 

The remaining RM80mil will be disbursed by MIDA to IIS over a period of three years, on a gradual basis as and when capex is incurred, at an interest rate of 2% per annum (10 years) on the amount drawn down; a reasonable rate, said Maybank. 

The research house’s forcases and RM4.30 target price are unchanged for now; and it reiterates Inari as the top pick of the sector for its improved earnings visibility and strong growth prospects. 

Its unutilised land in Batu Kawan Industrial Park is a wild card.