We project Inari’s 4QFY25 core earnings to come in at the range of RM50-60m (-16.4% to flat QoQ), bringing FY25F forecast to RM243m-253m (-20% to -16% YoY).
The anticipated earnings softness in 4QFY25 is attributed to a seasonal lull in anticipation of new product launches in September, coupled with forex headwinds.
Edge AI handset requires real-time inferencing and robust wireless connectivity, in turn driving RF demand through increased frequency bands and tighter filtering. This is poised to spur an upcycle in RF content per device.
We have revamped our financial model and reintroduced FY25/26/27F earnings at RM243/RM282/RM313m. Maintain BUY rating but with a lower TP of RM2.23, based on 5-year historical average PE multiple of 30x on revised FY26F core EPS of 7.4 sen.
Expecting a flattish closing for FY25. We project Inari’s 4QFY25 core earnings to come in at the range of RM50-60m (-16.4% to flat QoQ), bringing FY25F forecast to RM243m-253m (-20% to -16% YoY) – representing 91-95% of our current FY25F forecast. The anticipated earnings softness in 4QFY25 is attributed to a seasonal lull (typically in 1H of calendar year) in anticipation of new product launches in September, coupled with forex headwinds from appreciation of MYR against USD (4QFY25: RM4.31/USD vs 3QFY25: RM4.45/USD; FY25: RM4.43/USD vs FY24: RM4.70/USD).
RF segment to stay muted in the near term... We expect the RF content gain for the new product cycle in 2HCY25 to remain stable as the 5G-driven upcycle has largely played out in recent years. Although RF chip loading volume is expected to pick up sequentially in 2HCY25 as the key US customer will launch its new flagship model in Sep-25, we expect flattish showing from Inari’s smartphone segment in FY26 due to “innovation fatigue” and minimal form factor change.
…but could be lifted by Edge AI in the longer term. Our channel checks indicate that the flagship handset model lineup to be introduced in 2026 will usher in both a new form factor and realisation of on-device AI (Edge AI). Handsets with Edge AI require real-time inferencing and robust wireless connectivity, which will drive RF demand through increased frequency bands and tighter filtering. As such, this is poised to spur an upcycle in RF content per device and bolster Inari’s RF segment through higher packaging and test intensity. Although uncertainties on US semiconductor tariffs still linger, we believe the impact on Inari would be neutral or minimal given that its key end-customer’s substantial investment pledge in the US may shield its supply chains from tariffs.
Joint acquisition of Lumileds with Sanan. Despite investor concerns over Lumileds’ loss-making position (CY2024:-USD67m) and exposure to the competitive LED market, we see several merits in this acquisition (26% stake), such as: (i) potential turnaround of Lumileds led by Sanan’s debottlenecking efforts and restoration of customers’ confidence following its Chapter 11 episode should result in positive contribution to Inari’s share of associate profit, (ii) instant access to branded customers by leveraging on Lumileds IP portfolio and leading product performance in the LED market and (iii) potential revenue stream of RM250m p.a. for Inari as an insourced assembly and test (ISAT) partner for Lumileds, based on our estimates.
Forecasts. With the change in analyst, we have revamped our financial model and reintroduced FY25/26/27F earnings at RM243/RM282/RM313m, representing adjustments of -9%/-23%/-32% versus our previous forecasts. Our forecast has yet to factor in the proposed Lumileds acquisition, pending approval from Sanan’s shareholders and the relevant regulatory authorities.
Valuation. Post-earnings revisions, we maintain our BUY rating but with a lower TP of RM2.23, based on 5-year historical average PE multiple of 30x on revised FY26F core EPS of 7.4 sen.
Risks. Delays in its turnaround plan for Lumileds, and US semiconductor tariff uncertainties.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.212042 | 4.248408 |
| EUR | 4.921000 | 4.929487 |
| CNY | 0.591903 | 0.592919 |
| HKD | 0.540309 | 0.544492 |
| SGD | 3.268153 | 3.293573 |