KUALA LUMPUR: RHB Investment Bank Bhd (RHB Research) expects Inari Amertron's earnings growth to be subdued in the near term.
However, the firm foresees a brighter financial year 2025 (FY25) for the group, driven by anticipated contributions from new products and expansion.
The firm predicts 25 per cent growth in FY25, currently set against a peak forward price-to-earnings ratio of 34 times.
"We believe the optimism from the new smartphone range with artificial intelligence (AI) feature is in the price with risk on underscoring expectation.
"We still like Inari for its growth opportunities in the new upcycle, but prefer to accumulate at lower levels," it said in a note.
Meanwhile, RHB Research said the lacklustre volume growth in major smartphones amidst intense competition and trade tensions suggests limited near-term earnings potential, especially if new customers/project contributions fall short of expectations.
It said potential risks to the 25 per cent growth forecast for FY25 include underperformance of the new major smartphone range with the hype built-in on embedded AI features but with little transformation changes to back it up.
Besides this, it said the delays or lower contribution from its Yiwu expansion in China, coupled with the slower-than-expected ramp up and margins for new memory and optoelectronics, could pose other downside risks to expectations, while Edge AI and solar-related ventures are still at the infancy stage.
Nevertheless, the firm noted that the upside risks for the group could arise from a rebound in flagship smartphone sales in China due to the supply bottlenecks for national brands and aggressive discounts on various platforms.
"Additionally, stronger demand for the new US-based flagship phone expected in Sept/Oct with new AI features could point to an upside risk to the consensus' 241 million forecasted units in 2025.
"However, we caution that much of the anticipated 2025 volume growth is already factored into current prices given the 25 per cent earnings growth projection," it added.
On that note, RHB Research said Inari's cumulative period of nine months (9MY24) core earnings missed expectations due to weaker-than-expected margin, despite higher revenue and favourable foreign exchange.
Overall, the firm maintained a "Neutral" call on Inari, with a target price of RM6.30.
"The year-to-date (YTD) rally (+29 percent) is driven by liquidity and sentiment, with expectations centred around new smartphone technologies, memory products, power management modules, high-power LED products, Edge AI, and China expansion.
"These expectations are now built on a peak valuation range, resulting in a less compelling risk-reward balance," it noted.