KUALA LUMPUR: Inari Amertron Bhd's prospects remain bleak given the possible further interest rate hikes and investors' less sanguine sentiment on growth stocks, Affin Hwang Capital said.
The firm said while Inari's financial year ended June 30, 2022 (FY22) earnings per share (EPS) was left unchange, it lowered its FY23-FY24 EPS by 8.0-10 per cent given ongoing macro headwinds.
"Downside risks to our call include raw material and component shortages that could result in lower-than-expected sales for its customers, power disruptions in China that could impact its operations there, its key customer losing market share, insufficient production floor workers and skilled engineers, and a sharp rise in the ringgit against the US dollar," it said in a note today.
Affin Hwang said amid a seasonally weak quarter, Inari's third quarter (Q3) FY22 revenue declined 14 per cent quarter-on-quarter (Q-o-Q).
However, the radiofrequency (RF) segment, which accounted for 59 per cent of the company's revenue, fell a sharper 20 per cent Q-o-Q.
"Management also cited raw material supply constraints which impacted Inari's opto and generic segments."
Affin Hwang believes that inventory continued to be built in the RF segment, particularly for older models to limit any supply chain disruption.
"This likely explains the rise in the effective tax rate to 12.4 per cent due to expiry of the tax-free status for those products while at the same time explaining the one percentage point (ppt) Q-o-Q) rise in earnings before interest, taxes, depreciation, and amortisation margin, given production economies of scale.
"Notably, Q3 FY22 core net profit was up 21 per cent year-on-year driven by the better revenue and margin gains," it added.
Affin Hwang has maintained its "Buy" call on Inari, with a lower target price of RM3.35 from RM4.29 previously.