PETALING JAYA: After a strong recent run-up, Inari Amertron Bhd
’s shares are now seen as fully valued, given its subdued near-term earnings growth prospects.
While the outlook for the technology company appears bright for the financial year ending June 30, 2025 (FY25), its performance will likely be muted for FY24 amid weak margins.
On this score, RHB Research downgraded its recommendation on Inari to “neutral” from “buy”, with an unchanged target price of RM3.60, based on an unchanged price-earnings (P/E) ratio of 31 times.
“We expect subdued near-term earnings growth for Inari, with a brighter FY25 driven by anticipated contributions from new products and expansion,” the brokerage wrote in its recent report on the Penang-based tech company.
It noted that a 25% FY25 growth expectation now stood against a peak forward P/E ratio of 34 times, two standard deviations from the five-year mean, citing optimism stemming from new smartphone range with artificial intelligence (AI) feature.
RHB Research pointed out that the year-to-date rally of Inari’s shares by about 29% was driven by liquidity and sentiment.
Expectations centred around new smartphone technologies, memory products, power management modules, high-power LED products, edge AI, and China expansion are now built on a peak valuation range, presenting a less compelling risk-reward balance, it added.
“We still like Inari for its growth opportunities in the new upcycle, but prefer to accumulate at lower levels,” RHB Research said.It noted that Inari’s earnings for the first nine months of FY24 missed expectations due to weaker-than-expected margin, despite higher revenue and favourable foreign exchange rates.
The company said this was mainly attributable to additional fixed costs from new hiring and set up costs for future product development, alongside disruptions in electricity supply.
RHB Research said Inari faced downside risks in the form of lacklustre volume growth in major smartphones amid intense competition and trade tensions, which could suggest limited near-term earnings potential, especially if new customers and project contributions fall short of expectations.
“Potential risks to the 25% growth forecast for FY25 include underperformance of the new major smartphone range with the hype built-in on embedded AI features but with little transformation changes to back it up,” it said.
