Inari: On The Right Track

Inari FY14Q2 Financial Result

INARI	FY14Q2	FY14Q1	FY13Q4	FY13Q3	FY13Q2
Revenue	186.6	191.3	67.6	56.8	62.1
PBT	26.6	22.1	13.5	8.3	11.3
PBT%	14.3	11.6	20.0	14.6	18.2
PAT	24.4	21.0	13.1	12.4	8.7
Total Equity	202.2	176.8	153.4	110.0	97.6
Total Assets	438.8	406.2	366.4	181.3	176.2
Trade Receivables	123.5	121.1	93.0	38.6	36.8
Inventories	126.2	107.4	105.5	24.7	24.5
Cash	60.0	48.9	44.6	31.0	39.2
Total Liabilities	236.9	230.0	213.8	71.3	78.6
Trade Payables	131.2	138.7	120.2	48.0	54.2
ST Borrowings	26.2	19.6	20.4	5.5	4.6
LT Borrowings	16.4	17.8	10.3	13.3	8.8
Net Cash Flow	15.3	4.3	3.8	-9.9	-1.6
Operation	11.5	7.2	86.3	20.1	17.6
Investment	-14.5	-9.6	-112.2	-31.1	-17.2
Financing	18.4	6.8	29.7	1.1	-2.0
EPS	5.31	4.7	3.69	3.68	2.67
NAS	0.42	0.38	0.35	0.32	0.29
Net D/E Ratio	Net cash	Net cash	Net cash	Net cash	Net cash

Inari's latest FY14Q2 result is still a good one. Though revenue falls slightly, net profit attributable to shareholders increases 16% compared to preceding quarter of FY14Q1.

I expect a flat profit compared to the first quarter but Inari delivers slightly more than that, thanks to its improved profit margin.

Inari's management has mentioned before that they will work to improve the pathetic profit margin of recently acquired Amertron, and they certainly did just that.

Its PBT margin improves from 11.6% when Amertron's figures are fully consolidated into Inari's account for the first time, to 14.3% a quarter later. The management reports that the margin improvement in Amertron operation is primarily due to improved efficiency arising from integration and initiative undertaken by Inari's management team as well as favourable USD & gold price.

Why gold price? Anyone can explain?

Inari does not give an exact figure of its foreign exchange gain this time, though it was given (RM4mil) in its last quarter's financial report.

Revenue contribution from Amertron in this quarter is RM105.7mil. This means RM80.9mil comes from Inari which represents a 30% organic growth from RM62.1mil YoY, or 14% growth from RM71.2mil QoQ.

As I think Inari should be able to maintain this earning trend for its FY14 which ends in June14, I will increase my estimated FY14 earning for Inari to RM80mil (from RM70mil previously). RM80mil is conservative just in case the foreign exchange does not do Inari a favour. With increasing outstanding shares to 480mil, target EPS is 16.7sen. 

Thus, my revised target price for Inari is RM2.50 (from RM2.22) with a PE of 15x.

However, I'll bear in mind the dilution effect of 166mil outstanding warrants which will expire in April 2018, as well as ESOS.

At the same time, Inari declares second interim single tier dividend of 1.10sen plus special dividend 0.4sen, which is similar to the first interim + special dividend.

This makes the total dividend 3.0sen so far, which is 76% higher than total of 1.7sen in the corresponding period last year. Excluding the special dividends, the total 2.20sen this FY is still 30% more than last FY.

Inari has a dividend payout policy of at least 40% of net profit. So it might be around 7sen regular dividend per share for FY14 (excluding special dividend?) barring any unforeseen circumstances.

I regret I didn't make Inari my core portfolio stock (even though I planned to do so in the early stage). At the moment I'll just keep it as it is.