Friday 28 June 2013

Inari Get Ready To Fly?

Inari Berhad just completed the acquisition of Amertron, a company double its size.

Since listed in ACE market in July 2011, Inari has acquired 51% in Ceedtec in Jan 2012, who is a sole ODM partner of Agilent Technologies in Malaysia. This seems to have increased Inari's top and bottom line for the FY2013 ended June.

       Inari Technology

Now here comes a big one. Inari has acquired 100% stake in a Philippines company Amertron for USD32 million. Amertron has 2 plants in Philippines and one in China, and 3700 employees. It is an electronics manufacturing service (EMS) provider like Inari, specialize in optoelectronics especially in aerospace and defense industry. It has Avago and Osram as its main customers.

While listed in 2011, almost 100% of Inari's business comes from Avago Technologies, which involves the assembly of radio frequency chips in smart phones and tablets. Avago is a market leader in RF space and is also a major shareholder in Inari at 9.67% (at FY end 2012).

Inari has posted a series of strong quarterly results since listed in July 2011. With the potential jump in revenue and earnings after the acquisition of Amertron, its share price has rallied since April this year to 70-75sen. Its IPO price is at 38sen per share.

Inari's share price seems to have a strong resistant at 75 sen. If it breaks this resistant convincingly, it may sail upwards until one day when smart phones or tablets are no longer popular.

Is the share price or PE ratio too high now, especially when the amount of shares also increased? 

       Amertron Global

Below is the amateur Dummy's calculation.

Base on Inari's current FY2013Q3 financial result, it posted a net profit of RM12.4 million in Q3 and a cumulative net profit of RM28.9 million. However, RM4.1 million is earned from some tax incentive. Without this special gain, Inari's FY13Q3 net profit should be around RM7.9 million (tax rate ~5%).

Assume that Q4 earning is similar to Q3 at ~RM8 million, then the total net profit for FY2013 should be around RM32 million. 

After the issuance of rights issue, new shares, warrants bla bla bla, the total shares of Inari has ballooned from 331,608,700 to 442,993,778. Base on this figure & estimated net profit of RM32 million, the EPS of Inari in FY2013 (ended June 2013) should be 7.2sen, giving it a PER of 10x (current share price of 72sen).

This calculation does not factor in the contribution from Amertron. According to report, Amertron's turnover in 2011 is about USD120 million (RM380 million). With Inari's own estimated revenue of RM230 million in FY13, we can expect a 3 fold jump in Inari's revenue once Amertron is fully consolidated into Inari.

Nevertheless, a 3x jump in revenue does not mean a 3x jump in net profit. It is reported that Amertron's net profit in 2011 is USD4 million. If there is no change in its profit, it will contribute after tax profit of RM12.5 million to Inari yearly.

Assume that in FY2014, there is no growth in Inari+Amertron's profit, the net profit of Inari in FY2014 should be RM44.5 million. EPS will be 10sen and PER 7.2x at current share price of 72sen.

Once the warrants are fully converted in 5 years time, the total shares will come to 645,858,128 shares. If the earning does not change at that time, EPS will be 6.9sen & PER still at 10.4x for share price of 72sen.

From Inari's current earning trend and global trend for smartphones & tablets, it is likely that Inari will continue its growth trajectory especially with recent increase of 30,000 sq ft facility in Senai, Johor. As long as Amertron's business does not shrink markedly, Inari should have a good prospect ahead.

Besides, Inari also pays attractive dividend. It has a dividend payout policy of paying at least 40% of its net profit. The dividend yield is 7% in FY2012. If Inari's net profit in FY2014 is really RM44.5 million, then it will pay RM17.8 million as dividend or 4sen per share, which gives 5.6% yield at the share price of 72sen.

Inari's revenue & profit will still depend heavily on Avago. Will Avago stop doing business with Inari in the future? Well, Avago is the third largest shareholder in Inari. Furthermore, Avago has recently extended the manufacturing agreement with Inari for further 3 years til 30th April 2016.

From its balance sheet ended 31st March 2013, Inari is in a net cash position with RM31 million of cash and RM19 miilion of debt. The acquisition of Amertron does not deplete the cash or increase the borrowing much as it is funded mainly through rights issues and new shares.

       Inari daily chart

Inari's share price has surged more than 100% since we step into the year 2013. Does it still have room to go up further? Which would you choose between Gtronic & Inari? In the technology world, things can turn sweet & sour very fast.

No comments:

Post a Comment