We view FY27F as an inflexion year for INARI, marking the turn from FY26A's core net profit decline of -26.32% YoY to a projected +37.94% rebound in FY27F, as the Datacom/Photonics pivot moves from capacity build-out into revenue contribution, backed by a capex commitment of approximately RM300m (plus c.RM150m for buildings and facilities) across FY27F-FY28F.
We turn bullish into FY27F-FY29F on three developments from the post-briefing session: a front-loaded Datacom/Photonics capacity build-out, execution already running ahead of guidance (first-quarter FY27F RF utilisation at approximately 85% versus 77% guided), and growth optionality extending beyond the current ramp via Advanced Packaging, a new TIA customer relationship, and the Power/SoM pilot line.
We raise FY27F/FY28F/FY29F core net profit forecast by 21.33%/37.20%/49.87% to RM258.7m/RM298.1m/RM339.6m (from RM213.2m/RM217.3m/RM226.6m).
Upgrade to BUY from HOLD with a higher TP of RM2.94 (from RM 2.11) based on unchanged 37.7x PE multiple applied to rolled forward FY28F EPS of 7.8sen.
Post-Briefing Key Takeaways.
(i)Segment mix confirms the photonics pivot. FY26A revenue mix stood at Smartphone/Mobile 58%, Datacom 18%, Automotive 9%, Industrial 8% and Generic 7%. The business is shifting structurally from an FY24-FY26 mix of RF~60%/Optoelectronics~30%/Generic~10% toward RF~55%/Optoelectronics~38%/Generic~7% in FY27F, with Optoelectronics guided to move up further to a range of 40-45% by FY28F.
(ii)Customer concentration in the ramp. A key customer ("Customer B") is expected to roughly double order volumes over FY27F-FY28F, the single largest swing factor behind the Datacom/Photonics revenue build.
(iii) Capacity commitment in place. ISL (Inari Semiconductor Labs) is the Group's in-house photonics chip fabrication capability, producing the laser chips (DFB/EML/CWL/VCSEL) that go into optical transceivers and photonics packages for AI data centre connectivity. It is the physical capacity behind the Datacom/Photonics growth story: every incremental order from Customer B or a new photonics customer has to run through this line, so ISL capacity is the binding constraint on how fast that revenue can actually ramp. FY27F capex of approximately RM300m is committed to expand this capacity, with a further step-up indicated in FY28F.
(iv)Utilisation already ahead of guidance. First-quarter FY27F RF utilisation came in at approximately 85%, ahead of the approximately 77% originally guided, with the automated Customer B production lines ramping from October and capacity set to double into the new flagship smartphone launch.
Outlook. We turn bullish on INARI heading into FY27F-FY29F, mainly driven by three developments, (i) The capacity build-out behind the Datacom/Photonics ramp is front-loaded into FY27F, backed by a committed capex of approximately RM300m (plus approximately RM150m for buildings and facilities), with a further step-up already guided for FY28F; (ii) Execution is already running ahead of guidance, with first-quarter RF utilisation at approximately 85% against a 77% guide, Customer B’s automated production lines ramping from October into the new flagship smartphone launch, and Customer L's volumes also guided higher alongside discussions to extend production to Penang; (iii) Growth optionality extends well beyond the current ramp, with management flagging Advanced Packaging (2.5D/RDL, a USD100m committed investment), a new TIA customer relationship with potential for a second chip fab, and a Power/SoM pilot line (from August 2026) as further vectors into FY29F and beyond.
Earnings Revision. We raise FY27F/FY28F/FY29F core net profit by 21.3%/37.2%/49.9% to RM258.7m/RM298.1m/RM339.6m (from RM213.2m/RM217.3m/RM226.6m), driven by the front-loaded Datacom/Photonics revenue build and the accompanying gross margin step-up.
Valuation & Recommendation. Upgrade to BUYfrom HOLD with a higher TP of RM2.94 (from RM 2.11) based on unchanged 37.7x PE multiple applied to rolled forward FY28F EPS of 7.8sen.
Risks. Prolonged weakness in RF loading volumes, Forex volatility, delay in resuming full production after the fire incident.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.010089 | 4.038209 |
| EUR | 4.662104 | 4.666874 |
| CNY | 0.598052 | 0.598669 |
| HKD | 0.511478 | 0.515075 |
| SGD | 3.148983 | 3.171274 |