Maybank Investment Bank Bhd (Maybank IB) has maintained its HOLD recommendation for Inari Amertron Bhd after assessing the risk surrounding its radio frequency (RF) business. The research house said Inari risks losing its core RF business due to its major customer, Broadcom, possibly in-housing production of its cellular and connectivity chipsets in the future.
Despite identifying the risk as relatively contained at this stage, Maybank IB pointed out that Inari's short-term outlook remains challenging due to margin pressures, lower volume loads, new product introduction (NPI) ramp-up and rising labour costs.
The house highlighted recent developments, including a Bloomberg report from Dec 4, 2024, indicating that Apple Inc plans to begin using in-house modems for its low-cost smartphones in 2025. While this shift is seen as a potential threat to Inari's RF business, as Broadcom is a key supplier for Apple's RF components, Maybank IB analysts believe that Apple's move to in-house RF components is unlikely due to several factors.
These include the relatively low procurement costs of RF components such as Broadcom's FBAR filters, which account for less than 2% of the cost of an iPhone, and the risk of intellectual property infringement lawsuits. Moreover, Apple renewed a multi-year supply agreement with Broadcom in May 2023, securing its RF components supply for production in the US.
Maybank IB also noted that, while Apple's shift to in-house modems might seem logical given the cost of cellular modems in smartphones, the company is unlikely to replicate this move for RF chipsets. The research house argued that it does not make economic sense for Apple to take on the risks associated with in-housing RF production, especially given the stability of its current supply chain and Broadcom's market dominance in RF/wireless technology. As a result, the analyst anticipates that Inari's RF segment sales will remain resilient in the medium term, supported by higher content growth despite a slowdown in demand from China's iPhone market.
Inari's stock remains under Maybank's HOLD recommendation with a 12-month target price of RM2.93, offering just a 1% upside from its current price of RM2.97.
