Inari recorded 1HFY26 core net profit of RM112.6m (-19% YoY), missing both our (55%) and consensus (46%) expectations as we foresee a seasonally weaker 2HFY26 due to the lapse of peak handset sales in 1HFY26.
Despite weaker top line at -5.8% QoQ due to lower RF loading volume and unfavourable forex movement, 2QFY26 core earnings edged up by 5% QoQ. This was attributed to stronger GP margin at 23% (20% in 1QFY26) possibly supported by higher mix of testing revenue.
Cut our FY26/27/28F forecasts by 10%/16%/24% and maintain HOLD rating with a lower TP of RM1.41 (from RM2.00), based on a lowered PE multiple of 25x (from 30x) applied to FY27F core EPS of 5.6 sen.
Earnings miss. Inari recorded 2QFY26 core net profit of RM57.7m (+5% QoQ, -10% YoY), bringing 1HFY26’s sum to RM112.6m (-19% YoY) – missing both our (55%) and consensus (46%) expectations as we foresee a seasonally weaker 2HFY26 due to the lapse of peak handset sales in 1HFY26. 2QFY26 results were arrived after adjusting for EIs comprising forex loss (RM18.6m) and reversal for slow moving inventories (-RM2.8m).
QoQ. Despite weaker top line (-5.8%) due to lower RF loading volume and unfavourable forex movement, core earnings edged up by 5%. This was attributed to stronger GP margin at 23% (20% in 1QFY26) possibly supported by higher mix of RF testing revenue (typically command better margins) as management guided increased tester count in the previous analyst briefing.
YoY/YTD. Core net profit dropped 10% YoY/19% YTD, weighed down by softer RF loading volume. Despite encouraging sales for the latest smartphone models at its end-customer, RF segment saw shipment contraction because of distortion in RF assembly volume as Customer B optimises its RF portfolio by phasing out lower-value discrete and mid-band products while shifting its focus towards premium high-band modules.
Dividend. Declared second interim dividend of 1.0 sen per share (ex-date: 17 Mar), bringing 1HFY26 declared DPS to 2.33 sen (vs 1HFY25: 3 sen)
Outlook. Earnings are expected to trend sequentially weaker in 2HFY26, though this should be partially cushioned by a budget smartphone launch in March. The silver lining lies in the 2026 smartphone launch cycle, which may introduce a new form factor. This could potentially rekindle consumer interest in the refreshed lineup and support RF shipment volumes, provided Customer B and Inari can retain or expand their component share in the upcoming cycle. Despite the ongoing memory crunch, our channel checks reveal that the end-customer is in a favourable position to secure adequate supplies due to its immense leverage over memory vendors. We believe the end-customer is likely to keep pricing stable for its 2026 lineup, effectively absorbing higher component costs to undercut competitors who may be forced to raise prices. As a result, we think this may be supportive of Inari’s RF volume arising from a possibly favourable handset shipment volume from its end-customer by prioritising market share gains, in our view. Nonetheless, we remain cautious regarding the group's near-term outlook due to the ongoing appreciation of the RM against the USD, coupled with an uncertain sales trajectory.
Forecast. We cut our FY26/27/28F forecasts by 10%/16%/24% after imputing more conservative RF volume assumptions and cautious margin outlook amidst the prevailing forex headwinds.
Valuation. Post-earnings adjustments, we maintain HOLD rating with a lower TP of RM1.41 (from RM2.00), based on a lowered PE multiple of 25x (from 30x) applied to FY27F core EPS of 5.6 sen, with a 0% ESG premium/discount, reflecting its three-star ESG rating. Our revised target multiple represents c.-0.5SD to its five-year historical mean PE, implying a modest derating amid softer sales visibility and lingering earnings execution risks.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 3.878434 | 3.909825 |
| EUR | 4.590523 | 4.595422 |
| CNY | 0.567561 | 0.568180 |
| HKD | 0.495911 | 0.499417 |
| SGD | 3.065484 | 3.087199 |