KUCHING: Inari Amertron Bhd (Inari) is set to benefit from Broadcom’s new distribution hub and with the latter’s expansion of operations in Malaysia, analysts believe this may create more business opportunities for Inari going forward.

According to AmInvestment Bank Bhd (AmInvestment Bank), Malay Mail Online reported that Broadcom has launched its new RM59 million global distribution warehouse in Batu Kawan, Penang.

AmInvestment Bank noted that this bodes well for the local electrical and electronic (E&E) supply chain, including Inari.

“Having a global distribution hub set up in Malaysia means that Broadcom may direct more jobs to the local semiconductor players due to better logistics.

“We understand that this is part of Broadcom’s plan to gradually shift operations from Singapore to Malaysia due to cost effectiveness,” it said.

AmInvestment Bank further noted that as per New Straits Times’ report, Broadcom is planning to spend RM4.1 billion on expanding its operations in Malaysia over the next 10 years, particularly investing in global production planning, quality management, strategic procurement and logistics management.

The research firm believed this may create more business opportunities such as assembly jobs for Inari going forward.

However, it could not quantify the positive impact as of now.

On another note, AmInvestment Bank expected Inari to register exceptionally strong growth over the next two quarters in conjunction with the recent launch of several flagship smartphone models.

Judging from the sales response of the previous model, the research firm believed customers had deferred spending in anticipation of the upcoming ‘anniversary phone’.

The research firm also believed sales response in the first quarter of the new smartphone’s release could resemble the phenomenon in 2015 when the smartphone maker released a big-screen model, which saw a huge bump in unit sales, 45 per cent year on year (y-o-y).

AmInvestment Bank highlighted that Inari is now looking to proceed with the second phase of extension at its P13 plant, which will expand floor capacity by 120,000 square feet (sq ft).

The research firm noted that the extended building is estimated to cost RM10 million and take six to seven months to complete. One to two months has been allocated for planning and approval while four to five months is for construction.

“The additional floor space is needed to prepare for the group for potential pent-up demand for the new smartphone model,” it said.

AmInvestment Bank also noted that the group’s Inari Optical Technology (IOT) division, which produces iris-scanning components, is currently running at four million units (KKu) per month.

The research firm said that Inari plans to double the division’s capacity from the group’s current five KKu per month by the end of the first quarter of financial year 2018 (1QFY18) and expand by an additional six Kku per month in 3QFY18.

The research firm estimated that this would contribute approximately 10 per cent of FY18F revenue.

Overall, AmInvestment Bank continued to like Inari because of higher expected radio frequency (RF) orders from the recent launch of several flagship smartphone models, rising adoption of iris-recognition technology and capacity expansion in P13 plant to prepare the group for more jobs.

That said, while prospects remain bright for Inari, AmInvestment Bank kept its ‘hold’ recommendation as valuations appear uncompelling.