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$INARI / 0166 (INARI AMERTRON BERHAD)

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♨️ Fresh From Oven ♨️

*INARI 2QFY25 briefing keytakes (Zoom)*

*Date: 21 Feb 2025*

*Management: KC Lau (CEO)*

*Key takeaways:*

- 2QFY25 revenue RM349m, NP RM88.1m, NA RM2.8b, EBITDA RM129m
- 3 countries, 11 plants, >6k employees
- Qoq, YOY decreased due to comparatively lower volume of products but RF still quite intact.
- PAT qoq increase on sustained operational efficiency and better forex. Yoy dropped due to lower volume loadings and unfavourable forex losses YTDFY25 of -RM25m vs YTDFY24 of -RM8m
- Market is still paranoid with orders being held back – especially after news of tariff and Deepseek.
- Mix: 2QFY25 RF 68%, Opto 26%, Generic 6%; YTD RF 66%, Opto 28%, Generic 6%
- YTD 1HFY25: Smartphone/mobile 68%, Datacom 14%, Auto 8%, Industrial 5%, Generic 5%
- Smartphone: Hope that the new SE version will capture wider market.
- Datacom: Well versed with Fibre transceiver, moving from 100G to 400G thereafter 800G. Building 400G and 800G. DC needs to continue to invest.
- Automotive & Industrial: Still slow. Opto coupler – used to be at 100% UR, now only at 30-40%.
- No execution issue or -ve surprises based on customers feedback.
- Net cash of RM2.2b; complied by FBM Emas shariah index. Seriously looking at M&A.
- Capex – slowing down spending. FY24 at 157m for machines and equipment, YTD RM20+m

*Operational project updates*

- RF (P13) – higher dense content chip require higher capacity of process engineering (tighter nodes and pitches). Continuous process optimisation to achieve better results with lesser resources. Production scheduled as per customer’s requirement.
- Memory module (P34) – process optimisation – utilisation of internal IMIT machine (qualified) to increase output for die sorting (increased productivity with the volume required). Ongoing HVM with high yield achieved with better throughput (15% lesser time required). Running on high yield now.
- High power LED (P21) – PH – stable volume and US customer qualification done, ready for production. MY – non Auto products – started HVM on a product & building engineering samples – unchanged. MY – Auto products – IATF 16949 certified – in progress of co-developing a few products.
- Edge AI package (P21) – customer 1 – built capability but customer is pending on status. Customer 2 – biz model is project basis, the previous gen volume has slowed down and an improved version coming soon.
- Optoelectronics (Penang + Clark) – MY – further ramping of production (Progressively double the current capacity by 2QCY25 as planned). PH – planned to provide full turnkey solutions as requested by customer (target 3QCY25). PH – CK2.1 ready ahead of schedule and working with customer to load more.
- Optocouplers/sensors (Kunshan + Clark) – ATK ranked as #1 CM recognised by customer. More NPI programs received (exploring to assembly and test other applications). Slow moving on legacy products. At one point was at full UR, now only at 30% UR.
- Power management – Completed the set up transfer of machines earlier than scheduled. Completed all qual lots and sample builds with no major defects and high yield achieved. Undergoing reliability test and target for production by end 2QCY25.
- Automotive – MY – customer transferred testers to Inari for Micro controller chips testing. Device qualification completed and on target for additional production by end 2QCY25.

*Future advancement*

- SiP (flipchip) – for RF – new tech – increased placement accuracy, density and double sided SMT tech. Status: Preparing capability for AI smartphone.
- SiP (wire bond) – for Memory – new tech – multi die stacking, overhang wire bond (challenge on bouncing bump). Status: Preparing capability for higher stack dies. Hope government will support via NSS
- Flip Chip (CSP and BGA) – for AI / Edge AI – new tech – large die flipchip, high bum count. Status: Production line completed and already set up and sent prototype to customer (pending). Relevant to the recent queries received from other customers.
- 2.5D packaging – for Data servers / AI – new tech – multi chip stacking with interposer, fine pitch micro copper pillar. Status: Working with potential customer on product co development.
- Inari MIT operation (customised vision solution provider) – niched focus on AOI – FY25 plan of miniaturisation and die stacking align with the advancement in packaging. In progress on submitting and qualifying machine from external MNC customer. Performing overhaul of older existing machines (hardware and software) to improve OEE.

*Market outlook and biz expansion*

- Fiber optics, global edge AI market and number of smartphone users WW are going uptrend still. Growth min Fiber optics and Global Edge AI market will be higher.
- Penang MY: P34D – 400ksqft totalling to 1.08m – estimated completion by end 25 – for advanced packaging – panel level packaging, wafer bumping, 2.5D advanced packaging, 2D edge AI packaging. Purchased 5 acre land in BKIP (planning) for new products i.e. timing/frequency devices, power devices, optical devices. Expansion in P1, 3, 5 – expansion on wafer sort, wafer processing and final test.
- Yiwu, China – Fab2 – expansion on wafer sort, wafer processing and final test.
- Clark PH – CK2.1 – preparation – full turnkey solutions for fibre transceiver customer.
- Existing manufacturing capacity of 2.15m sqft – expansion plan for up to 4m sqft.

*Q&A*

- TSMC – Intel – Broadcom rumors – customer always want to have fabless concept. Assembly – 2 portion from customer – advanced technology, 2nd portion – current CBU – still high revenue potential.
- Inari follows customer’s preferences in sockets – always in filters. But open to take on new jobs. Cannot comment much on Skywork’s content loss. But not ruling out this possibility?
- RF momentum – no firm visibility for 2H, depends on product demand. But on Mar season, should see marginally better loadings yoy.
- SE version – 6 months visibility – 3 months floating 3 months fix – seeing good chance of better loadings.
- M&A – will follow China +1 SC reconfig. Eyeing on Automotive. Partnership – target to be at new tech area (advanced packaging).
- In house advanced packaging – need to build based on customer’s plan.
- Some customers are looking for cost down (as usual) – for eg 1200 RFT might be reduced to 1100 but on higher efficiency.
- Tariff: So far no news.
- Loadings softening for existing model but new SE might give upside – looking at max UR of 70% from Mar-Jun25. Low visibility to 2H launch in 2025, NPI normally in Jun.
- Capex for power management and automotive – capex for PH already used up USD9m, Penang RM13m. Power management for SiC in PH.
- Memory – invested enough for now in P34. Target revenue: RM100m for FY26.
- SE (previous gen vs current gen) – not much of content density change.
- Industry is consolidating, and Mar quarter should be better qoq but not in a big way.