Wednesday 26 November 2014

Inari: In Dire Need For Capacity Expansion

Inari FY15Q1 Financial Result

INARI FY15Q1 FY14Q4 FY14Q3 FY14Q2 FY14Q1
Revenue 221.9 223.9 191.8 186.6 191.3
PBT 33.9 31.4 27.2 26.6 22.1
PBT% 15.3 14.0 14.2 14.3 11.6
PAT 33.8 30.8 25.0 24.4 21.0






Total Equity 313.4 260.2 231.1 202.2 176.8
Total Assets 544.3 487.5 461.4 438.8 406.2
Trade Receivables 143.4 137.3 131.8 123.5 121.1
Inventories 135.8 137.8 137.7 126.2 107.4
Cash 89.5 65.3 53.2 60.0 48.9






Total Liabilities 230.9 226.9 231.1 236.9 230.0
Trade Payables 107.9 120.0 118.4 131.2 138.7
ST Borrowings 46.8 36.4 33.0 26.2 19.6
LT Borrowings 15.1 18.6 15.8 16.4 17.8






Net Cash Flow 14.0 20.9 8.8 15.3 4.3
Operation 23.7 41.2 12.4 11.5 7.2
Investment -34.4 -43.4 -30.4 -14.5 -9.6
Financing 24.7 23.0 26.9 18.4 6.8






EPS 6.00 6.23 5.19 5.31 4.69
NAS 0.56 0.53 0.48 0.42 0.39
Net D/E Ratio Net cash Net cash Net cash Net cash Net cash


Inari's FY15Q1 revenue drops less than 1% QoQ but PATAMI improves by 10%.

However, EPS drops 4% QoQ due to conversion of warrants.

Compared to FY14Q1, PBT margin increases significantly from 11.6% to 15.3%. Thus its PATAMI increases by 61% YoY despite 16% rise in revenue.

Inari's management has successfully improves the margin of newly acquired Ametron from 3.7% to 6.2%.

Its Radio Frequency unit has been running at full capacity since April 2014. It has already acquired a 5.5-acre leasehold land with a 2-storey factory at Bayan Lepas to expand its production.

Besides, it has also acquired a piece of 5.05-acre leasehold land in Batu Kawan industrial park for RM7.85mil. However, the Batu Kawan site is only expected to contribute from year 2016 onward.




Lots of warrants have been converted to Inari shares in year 2014 despite the fact that they will only expire in year 2018.

Though earning has been diluted, it shows investors' confidence in the company's future. I believe that many are eyeing its upcoming rights issue with free warrant, as well as its quarterly dividends.

As a result, cash increases to a record level of RM89.5mil.

Inari has announced its first interim dividend for FY15 and it does not disappoint for sure. It will pay 1.8sen single tier dividend plus a special dividend of 0.4sen. This is almost 50% higher than previous year's corresponding period!


Inari's Dividend History
Div (sen) FY15 FY14 FY13 FY12
1st 1.8 (0.4) 1.1 (0.4) 0.8 0.6
2nd
1.1 (0.4) 0.9 0.6
3rd
1.2 (0.8) 0.9 0.8
4th
1.8 (-) 1.0 (0.9) 0.8


With the robust outlook of semiconductor industry at the moment, I think Inari still has room to grow.

The acquisition of the 166,000 sq ft factory in Bayan Lepas will increase its production capacity in RF business from early year 2015. It might also shift some of its fiber optics operation from Johor to the new factory.

Its 100%-owned Inari South Keytech (fiber-optics) & 51%-owned CEEDTec (test & measurement equipment) are expected to contribute positively in FY15.

Nevertheless, there are no financial info regarding those subsidiaries in Inari's quarterly financial report. So we can only get the info from analyst reports later.

Its proposed rights issue & free warrant is expected to complete in early January 2015.

I will set my guesstimated FY15 PATAMI for Inari at RM140mil, which represents a great 40% improvement YoY.

With current outstanding shares at 616mil which has increased quite a lot from end of FY15Q1, target EPS and target price will be 22.7sen and RM3.41 (PE 15x) respectively.

With 40% dividend payout, it might pay up to RM56mil in FY15 as dividend, or approximately 9sen per share. Dividend yield will be 3.1% at share price of RM2.90.

This means that it is likely to pay more than 2sen for the next 3 interim dividends in FY15.

Anyway, the rights issue will further dilute its earning about 12-13% excluding the new warrants. 

As I expect its bottom line to grow, I will keep my investment in Inari.

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