Inari Amertron Bhd is a familiar name to investors who have semiconductor-related sectors on their radar. Indeed, the company is also no stranger to the Billion Ringgit Club Awards. 

This year, as one of the leading players in the outsourced semiconductor assembly and test industry, the company has taken home the award of “Highest Returns to Shareholders Over Three Years” under the big cap companies category — those with a market capitalisation of between RM10 billion and RM40 billion.

Riding the semiconductor boom that started in the second half of 2019, Inari Amertron achieved a stellar 29.7% shareholder return in the three-year period under review. The shareholder return takes into account the company’s dividend payment for three financial years ended June 30, 2019 (FY2019), FY2020 and FY2021, plus its share price between March 29, 2019 and March 31, 2022. 

Its adjusted share price had steadily climbed from RM1.41 on March 29, 2019, to RM3.06 on March 31, 2022 — a gain of 118%. 

Notably, a large part of the share price rally was in 2020 and 2021, where its adjusted share price shot up to a record high of RM4.112 in November 2021. 

The sharp share price gain was mainly driven by the hefty premium that investors were willing to pay on technology stocks globally, ranging from online shopping platforms and food delivery start-ups to computer chip makers and their supportive services providers, such as Inari, as the lockdowns caused by the Covid-19 pandemic worldwide drove demand for the services and products of these companies.

The pandemic spurred companies to switch to digital, as lockdowns took companies from physical offices to virtual ones. It changed the way people lived, worked and communicated. 

That said, Inari Amertron’s earnings growth was rather uneven for the three financial years under review. Its profit after tax (PAT) made a big leap in FY2021 after the company reported earnings contraction for two consecutive years. 

From RM260.13 million in FY2018, the company’s PAT dropped to RM192.3 million in FY2019 before falling further to RM156.4 million in FY2020. Nevertheless, it more than doubled to RM330.7 million in FY2021. 

As a result of the drop in earnings, Inari Amertron also declared a lower dividend of 5.2 sen per share for FY2019 and 4.4 sen per share for FY2020, compared with 8.4 sen in FY2018. But, the board rewarded shareholders with a record-high dividend of 11 sen in FY2021 in line with the strong earnings growth. 

The company’s PAT growth continued, albeit at a slower pace, in FY2022. Its PAT increased by 18.3% to RM391.2 million from RM330.7 million in FY2021. Annual revenue grew 8.3% to RM1.55 billion in FY2022 from RM1.43 billion a year ago. The increase in earnings was mainly contributed by higher revenue growth in the radio frequency (RF) business segment.

The earnings growth, however, did not manage to sustain the upward trend on share price as the global tide has turned against the technology sector. The rally among semiconductor stocks has waned since the fourth quarter of 2021 as global investors were factoring in an interest rate hike as inflationary pressure started mounting. 

The concerns of a recession to be brought by high interest rates also cast a pall on the outlook of the semiconductor industry. 

The share price has fallen to RM2.40 from RM4.05 at the start of the year.

RHB Research expects growth to moderate going into FY2023 with minimum limited volume growth from the RF segment on potentially slowing smartphone sales. 

The research house points out there could be lingering risk from the supply of wireless components to a major smartphone brand through Inari Amertron’s largest customer (whose name cannot be disclosed for confidentiality purposes) — the current contract expires in mid-2023 — if a further deal cannot be reached or there is a reduction of contracted components. 

“Should this key customer opt for an end-to-end solution (front- and back-end) made available by closest competitor Qualcomm or successfully develop its own in-house solutions, this may post a significant earnings risk to Inari,” it adds. 

RHB Research has downgraded Inari Amertron to “neutral” on macro headwinds, risk of contract non-renewal, slowdown in the semiconductor market and continued hawkish tone by the US Federal Reserve. 

Nonetheless, one silver lining for the company is the strong greenback, which will help to cushion it against any potential slowdown in volume loadings, says the research house.