The Illusion of Growth: What Inari’s Numbers Really Say

Value Investing Case Study 96-1: In this article sub-titled “Growth Without Returns? Dissecting Inari’s Capital Efficiency Decline”, I looked at the fundamental analysis of Inari Amerton. 

 

Inari Amerton Berhad (Inari or the Group) has long been recognized as one of Malaysia’s flagship technology companies. As an Outsourced Semiconductor Assembly and Test (OSAT) service provider, Inari does not design chips or fabricate wafers. Instead, it plays a crucial role in post-fabrication processes like packaging, assembly, and testing. 

Inari has expanded its capabilities and geographic reach over the past decade. What began as a focused RF testing player has grown into a more diversified outfit with operations extending into China. At the same time, however, profitability and capital efficiency have come under pressure in recent years. This raises questions about its ability to translate growth into shareholder value.

This article assesses whether Inari remains an attractive opportunity through a value investing lens. I examine its long-term operating performance, financial resilience, and industry positioning, and compare its standing among Bursa-listed peers. 

The goal is to answer one key question: Does Inari offer enough business quality and valuation upside to warrant an investment today? My analysis showed that while fundamentally sound, there is no margin of safety at the current market price.

Should you go and still buy it? Well, read my Disclaimer. 

Contents

• Company background

• Operating trends

• Peer comparison

• Financial position

• A Case for Resiliency

• Valuation

• Conclusion

This blog is reader-supported. When you buy through links in the post, the blog will earn a small commission. The payment comes from the retailer and not from you. Learn more.

Company background

As of 2024, Inari operated as a leading OSAT service provider. 

The Group is still not a chip designer or foundry but specializes in post-fabrication services such as assembly, packaging, and testing. While the business model (OSAT) remains the same, the breadth, complexity, and markets served have expanded over the past decade:

• In 2016, Inari was largely focused on RF testing for mobile devices.

• By 2024, it had diversified into advanced SiP, fibre optics, automotive sensors, and custom ASIC packaging, indicating a move up the value chain within the OSAT domain.

From a geographic perspective, it has expanded its operations to China today, compared to being focused on Malaysia and the Philippines a decade ago. 

The OSAT sector is a growing one and thus should provide a long growth runway for the Group.

“Osat Market is projected to grow from USD 44.39 Billion in 2025…exhibiting a…CAGR of 8.42% during the forecast period (2025 - 2034).” Market Research Future

“The global outsourced semiconductor assembly and test services market size was valued at USD 37.22 billion in 2022 and is expected to grow at a…CAGR of 7.9% from 2023 to 2030.” Grand View Research

Note that Inari has Jun as its financial year end. Unless stated otherwise, the years in this article refer to the financial years. Also, the 2025 results in this article were based on the LTM March 2025 performances.

Operating trends

Over the past decade, Inari managed to grow its revenue at 3.1 % CAGR. While the revenue growth was relatively steady, PAT was volatile, with 2 exceptional profit spikes. Refer to the left part of Chart 1.

• 2017 to 2018. The profit spike here was driven by both higher revenue and margin expansion. Gross profit margins averaged 25.4% over these two years, compared to 20.7% in 2016. According to the company, this margin improvement was attributed to cost efficiency and higher utilization of production capacity.

• 2021 to 2022. The profit spike during this period was driven by strong semiconductor demand during the COVID-19 supply chain disruption, which led to higher revenue and margin expansion. The average gross profit margin for these two years was 30.1%, up from 20.4% in 2020, reflecting improved operating leverage, favourable product mix, and higher utilization.

The return patterns followed that of the profits. Refer to the right part of Chart 1. Over the past decade, returns were volatile:

• ROIC ranged from 18 % to 69 % with an average of 39 %.

• ROE ranged from 7 % to 26% with an average of 17%.

Both the average returns were greater than the current WACC and cost of equity of 10% each, suggesting that despite the volatility, Inari created shareholders’ value.

Chart 1: Performance Index and Returns

Declining returns

Unfortunately, both revenue growth and margin expansion could not be sustained, resulting in relatively lower profits thereafter. 

The company attributed the decline in profitability in 2024 to underutilized production capacity and broader industry headwinds, including fluctuating demand, geopolitical tensions, and monetary tightening. 

The troubling picture is that despite the 2025 profits being higher than those in 2016, the returns in 2025 were lower than those in 2016. The main reason for this was the higher capital accumulated. 

From 2016 to 2025, total assets grew at 16.2 % CAGR while total equity grew at 18.5 % CAGR. In contrast, PAT grew at only 4.5 % CAGR.

As noted on page 8 of the 2024 Annual Report, total equity reached RM 3.17 billion, driven by capital accumulation and capacity expansion, but without commensurate growth in earnings.

Inari’s higher capital base today was partly the result of a successful private placement in 2021, which significantly boosted equity. The company has maintained strong cash reserves and continued investing in capacity expansion and operational readiness, positioning itself for long-term growth despite near-term demand softness.

Unfortunately, I could not find any reasons in the various Annual Reports for the declining capital efficiency. Is this an industry feature, or is it a problem only with Inari’s?

Cost structure

When I dug deeper into its margins and cost structure, I found that while there were periods of margin expansion, these could not be sustained with margin contraction subsequently. Refer to the left part of Chart 3.

At the same time, Selling, General and Administration (SGA) margins crept up so that it was 10% in 2025 compared to 7 % in 2016. Along the same lines, the fixed cost margin was higher at 17% in 2025 compared to 11 % in 2016. 

The other feature is its cost structure, where the fixed cost was on average about 16 % of the total cost. This low fixed-cost base implies lower operating leverage, meaning the company is more resilient during downturns, although revenue increases have a more muted effect on profit.

Chart 2: Margins and Operating Profit 

Note to Op Profit. I broke down the operating profits into fixed costs and variable costs.

• Fixed cost = SGA, Depreciation & Amortization and Others.
• Variable cost = Cost of Sales that excluded Depreciation & Amortization.
• Contribution = Revenue – Variable Cost.
• Contribution margin = Contribution/Revenue.

Low tax rates

Over the past decade, Inari had an average effective tax rate of 8 %. This is well below the statutory 24% due to long-standing tax incentives such as Pioneer Status and MSC Status. These were granted by the Malaysian government in recognition of Inari’s investments in front-end module devices and strategic technology sectors.

Peer comparison

I compared Inari's performance with several Bursa companies in the semiconductor sector. I would group these companies into 4:

• Semiconductor Assembly, Test, and OSAT – Inari, KESM, MPI, Unisem.

• Semiconductor Components and Optoelectronics – D&O, Gtronics, JHM.

• Equipment and Automation (Semiconductor Manufacturing Tools) – Elsoft, Frontken, Greatech, Vitrox.

• Others – Key Asic (design) and Turiya (chemical plating)

You can see from Table 1 that Inari ranked No. 3 in terms of the 2024 revenue and its growth rate of 5% is slightly below the panel average of 6%.

Table 1: Peer Revenue

Inari’s overall peer performance can be rated as good, though not exceptional, based on the following:

• Inari ROE and ROA are better than the peer median. You can see from Chart 3 that the sector also experienced similar declining returns over the past decade.

• While Inari’s EBIT margin is better than the peer median, it is worse than the median gross profit margin. Refer to Chart 4. I suspect that this is due to the nature of its OSAT business. It probably does not have much pricing power. Note that both Inari and the peers experienced declining margins post-2021.

• From a capital efficiency basis, both Inari and the panel had declining asset turnover and gross profitability. Refer to Chart 5. While Inari's asset turnover initially did better than the peer median, over the past few years, its asset turnover has dropped to be below the peer median. 

• Both Inari and the peers had volatile free cash flow margins. Refer to the right part of Chart 6.  But I would rate Inari’s performance as better than the peer median since it did not suffer a large negative cash flow.

• Inari had a higher quantum of EPS compared to the peer median. Inari EPS also grew by about RM 0.02 per share from 2015 to 2024, compared to the RM 0.01 per share for the peers. 

Chart 3: Peer Returns

Chart 4: Peer Margins

Chart 5: Peer Asset Turnover and Gross Profitability

Chart 6: Peer EPS and Free Cash Flow Margin

Case Notes I evaluate a company’s fundamental soundness through two lenses: Performance vs. its history. This involves assessing whether the company’s current financial and operating metrics are in line with or better than its historical averages. A company that sustains or improves upon its past performance signals internal consistency and operational discipline. Performance trends vs. peers. Here, I benchmark the company against its industry peers to see how it is positioned competitively. Metrics such as ROE, EBIT margins, asset turnover, and earnings growth are compared over time. A company that outperforms its peers in both level and trend demonstrates relative strength in its business model and execution. Only when a company performs well on both fronts - against its track record and relative to its peers - can it be considered fundamentally sound. This dual-filter approach ensures that I account for both internal resilience and external competitiveness. As you can see, there are many issues to consider when carrying out a fundamental analysis of companies in this sector. This requires expertise and time.  Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format. You can see the position of Inari as of 2 June 2025 in the Fundamental Mapper chart below. Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies   PS: When looking at companies in the Gem quadrant, the focus is on ensuring that they have the fundamentals to improve their business performance. This will drive the business value. Hopefully, the market does not recognize the improvements yet, thereby providing a good margin of safety.

Case Notes

I evaluate a company’s fundamental soundness through two lenses:

• Performance vs. its history. This involves assessing whether the company’s current financial and operating metrics are in line with or better than its historical averages. A company that sustains or improves upon its past performance signals internal consistency and operational discipline.

• Performance trends vs. peers. Here, I benchmark the company against its industry peers to see how it is positioned competitively. Metrics such as ROE, EBIT margins, asset turnover, and earnings growth are compared over time. A company that outperforms its peers in both level and trend demonstrates relative strength in its business model and execution.

Only when a company performs well on both fronts - against its track record and relative to its peers - can it be considered fundamentally sound. This dual-filter approach ensures that I account for both internal resilience and external competitiveness.

As you can see, there are many issues to consider when carrying out a fundamental analysis of companies in this sector. This requires expertise and time. 

Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format.

You can see the position of Inari as of 2 June 2025 in the Fundamental Mapper chart below.

Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies

 

PS: When looking at companies in the Gem quadrant, the focus is on ensuring that they have the fundamentals to improve their business performance. This will drive the business value. Hopefully, the market does not recognize the improvements yet, thereby providing a good margin of safety.

Case Notes

I evaluate a company’s fundamental soundness through two lenses:

• Performance vs. its history. This involves assessing whether the company’s current financial and operating metrics are in line with or better than its historical averages. A company that sustains or improves upon its past performance signals internal consistency and operational discipline.

• Performance trends vs. peers. Here, I benchmark the company against its industry peers to see how it is positioned competitively. Metrics such as ROE, EBIT margins, asset turnover, and earnings growth are compared over time. A company that outperforms its peers in both level and trend demonstrates relative strength in its business model and execution.

Only when a company performs well on both fronts - against its track record and relative to its peers - can it be considered fundamentally sound. This dual-filter approach ensures that I account for both internal resilience and external competitiveness.

As you can see, there are many issues to consider when carrying out a fundamental analysis of companies in this sector. This requires expertise and time. 

Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format.

You can see the position of Inari as of 2 June 2025 in the Fundamental Mapper chart below.

Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies

 

PS: When looking at companies in the Gem quadrant, the focus is on ensuring that they have the fundamentals to improve their business performance. This will drive the business value. Hopefully, the market does not recognize the improvements yet, thereby providing a good margin of safety.

Case Notes

I evaluate a company’s fundamental soundness through two lenses:

• Performance vs. its history. This involves assessing whether the company’s current financial and operating metrics are in line with or better than its historical averages. A company that sustains or improves upon its past performance signals internal consistency and operational discipline.

• Performance trends vs. peers. Here, I benchmark the company against its industry peers to see how it is positioned competitively. Metrics such as ROE, EBIT margins, asset turnover, and earnings growth are compared over time. A company that outperforms its peers in both level and trend demonstrates relative strength in its business model and execution.

Only when a company performs well on both fronts - against its track record and relative to its peers - can it be considered fundamentally sound. This dual-filter approach ensures that I account for both internal resilience and external competitiveness.

As you can see, there are many issues to consider when carrying out a fundamental analysis of companies in this sector. This requires expertise and time. 

Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format.

You can see the position of Inari as of 2 June 2025 in the Fundamental Mapper chart below.

Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies

 

PS: When looking at companies in the Gem quadrant, the focus is on ensuring that they have the fundamentals to improve their business performance. This will drive the business value. Hopefully, the market does not recognize the improvements yet, thereby providing a good margin of safety.

Financial position

I would consider the Group as financially strong.

As of Mar 2025, it had RM 2.2 billion in cash. This is equal to 63 % of its total assets. 

As of Mar 2025, it had a debt-equity ratio of less than 1 %. 

Over the past decade, it had an average 4 % Reinvestment rate (Reinvestment/NOPAT). Reinvestment = CAPEX & Acquisition – Depreciation & Amortization + increase in Net Working Capital. This low rate meant that a big part of the NOPAT could be returned to shareholders.

Over the past decade, it generated positive cash flow from operations every year. During this period, it generated RM 3.6 billion in cash flow from operations compared to the total PAT of RM 2.5 billion. This is a good cash flow conversion ratio.

It had a good capital allocation plan. Refer to Table 2. The cash flow from operations was sufficient to fund its CAPEX. 

Table 2: Sources and Uses of Funds 2016 to 2025

A Case for Resiliency

Inari’s journey over the past decade reflects a company that has not only evolved but also endured through changing industry dynamics. The patterns across various charts suggest that Inari and its peers operate in a cyclical sector. A generous interpretation would frame this as cyclical movement without a clear long-term return trend. 

But could this apparent lack of downward trend actually signal resilience? One could argue that this is so based on the following:

• Steady climb up the value chain. Inari remains a pure-play OSAT provider, but it has steadily climbed the value chain — from basic RF testing in 2016 to advanced SiP, fibre optics, and custom ASIC packaging by 2024. This specialization within a structurally growing sector (OSAT market CAGR: 7.9–8.4%) reinforces its long-term relevance.

• Geographic diversification. The Group’s expansion into China adds supply chain proximity, customer access, and risk diversification beyond its traditional Malaysia-Philippines base.

• Demonstrated adaptability through cycles. While revenue only grew at a modest 3.1% CAGR, Inari delivered spikes in profitability during 2017/2018 and 2021/2022. This shows the company’s ability to convert operating leverage into shareholder value when conditions allow.

• Balanced cost structure. Despite rising fixed costs, it still averaged just 16% of total costs. This lower fixed-cost base cushions downside risk, even if it limits upside potential, a trade-off that supports financial resilience.

• Sound financial footing. As of March 2025, Inari held RM 2.2 billion in cash (63% of total assets) and maintained a debt-equity ratio below 1%. Over the past decade, it generated RM 3.6 billion in operating cash flow vs. RM 2.5 billion in PAT — an impressive conversion ratio, reflecting disciplined capital management.

• Relative strength vs. peers. Inari’s ROE, ROA, and EBIT margin remain above the peer median, even amid industry-wide return and margin compression. Its more stable free cash flow and higher EPS growth also speak to operational and capital discipline.

Looking at Charts 1 and 2, while the Group’s revenue and returns declined from 2022 to 2025, this period likely offers a more realistic baseline going forward — one that still supports value creation through operational consistency, sector growth, and financial strength. 

Valuation

I valued Inari, taking into account the above resiliency picture. I took the 2022 to 2025 average values as the normalized performance over the cycle. The key assumptions are: 

• The base revenue is the 2025 revenue growing at a perpetual 4 % growth rate.

• The base contribution margin, fixed cost margin, and capital turnover would be the 2022 to 2025 average values. There would not be any change to these over the valuation period.

• The Reinvestment rate would be the past decade's average values (based on the Reinvestment margin). 

• The tax rate would be the past decade's average rate of 7.6 %. I assumed that the company would be able to extend its tax benefits through new investments in technology.

On such a basis, I obtained an intrinsic value of RM 1.66 per share compared to the market price of RM 1.98 per share (9 Jun 2025). There is no margin of safety. 

Valuation model

I valued Inari based on a single-stage valuation model, as shown in Table 3. The basic equations used in the model are:

Free Cash Flow to the Firm or FCFF = EBIT(1 – t) – Reinvestment.

EBIT = Revenue X Contribution margin – Fixed cost. The earning was based on the business model shown in the left part of Chart 3.

Reinvestment was derived from the Reinvestment margin.

The fixed cost was derived from the fixed cost margin.

Table 3: Sample calculation

The cost of funds was based on the first page results of a Google search for “Inari Amerton WACC”. Refer to Table 4.

Table 4: Estimating the cost of funds

Risks and limitations

I think that my valuation assumptions are realistic based on comparing the following valuation output with Inari’s historical performance and those of its peers.

• ROIC of 35 % compared to the 2022 to 2025 average ROIC of 37 %.

• EBIT margin of 20% compared to the 2022 to 2025 average EBIT margin of 20%. The 20% EBIT places Inari around the 2024 upper quartile position among the peers.

• EPS of RM 0.07 per share compared to the 2022 to 2025 average EPS of RM 0.09 per share. The 2024 peer upper quartile EPS was RM 0.06 per share.

Are there potential upsides? Looking at Charts 1 and 2, the 2022 to 2025 average values amount to some mid-point between the peak and trough positions. 

Chart 7 compares the historical trends with those projected by the valuation model. Looking at these comparisons, there may be a case for a more optimistic set of assumptions for the contribution margin and fixed cost margin.

For example, 10 % better assumptions for contribution margin, lower fixed cost margin, and better capital will increase the intrinsic value to RM 1.94 per share. This assumes that all other parameters remain unchanged. 

Chart 7: History vs Projection

While there may be upsides, there are also potential downsides.

• I would like to point out that my assumption of a 7.6 % tax rate in perpetuity is probably a stretch. A higher tax rate would reduce the intrinsic value. For example, assuming a 24% nominal tax rate, the intrinsic value would be reduced from RM 1.66 per share to RM 1.45 per share, all else being the same.

• Its 4% historical Reinvestment rate is much lower than the one given by the fundamental growth equation. Based on 4% growth rate and a 35% ROIC, I estimated the fundamental Reinvestment rate to be 12%. With a 12% Reinvestment rate the intrinsic value would be lower to RM 1.56 based on the valuation model in Table 3.

Conclusion

Inari presents a mixed investment picture. On one hand, it remains fundamentally sound. 

• It is financially strong with strong positive cash flows.

• It is an operationally resilient OSAT player with a track record of profitability and returns exceeding its cost of capital. 

• It is steadily moving up the value chain with geographical diversification into China.

• It delivered a relatively stable performance compared to peers, reinforcing its long-term positioning.

However, the Group faces two key challenges: declining capital efficiency and a lack of sustained margin expansion. 

While it has navigated cyclical upswings well, the past few years highlight a more subdued and possibly structural growth profile. The high cash reserves suggest that capital has not yet translated into proportionate earnings growth.

At the current market price of RM 1.98 (as of 9 June 2025), Inari trades above its estimated intrinsic value of RM 1.66. Even with more optimistic scenarios, the upside appears limited. Additionally, the assumption of perpetually low tax rates poses a downside risk.

Investment thesis

Inari is a fundamentally solid OSAT player with a strong balance sheet, resilient cash flows, and a growing presence in higher-value semiconductor packaging segments. Its ROE and EBIT margins are stronger than most local peers, and its earnings per share have grown more steadily.

However, Inari faces two key challenges: declining capital efficiency and lack of sustained margin expansion. While the company has shown the ability to ramp up profits during upcycles, recent years point to a more subdued growth trajectory. There is also no margin of safety based on my valuation. As such, Inari is best viewed as a hold or watchlist candidate.

Case Notes An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions.  It defines your reasoning. A clear thesis encourages disciplined decision-making. It helps assess risks. It provides a benchmark to evaluate whether the investment is performing as expected. An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

Case Notes

An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions. 

• It defines your reasoning.

• A clear thesis encourages disciplined decision-making.

• It helps assess risks.

• It provides a benchmark to evaluate whether the investment is performing as expected.

An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

Case Notes

An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions. 

• It defines your reasoning.

• A clear thesis encourages disciplined decision-making.

• It helps assess risks.

• It provides a benchmark to evaluate whether the investment is performing as expected.

An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

Case Notes

An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions. 

• It defines your reasoning.

• A clear thesis encourages disciplined decision-making.

• It helps assess risks.

• It provides a benchmark to evaluate whether the investment is performing as expected.

An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

END

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 

How to be an Authoritative Source, Share This Post

If the above article was useful, you can find more insights on how to make money in my e-book. The e-book is now available from Amazon, Kobo and Google Play. PS: If you are in Malaysia or Singapore, the e-book can only be download from Kobo and Google Play.

If the above article was useful, you can find more insights on how to make money in my e-book. The e-book is now available from Amazon, Kobo and Google Play.

PS: If you are in Malaysia or Singapore, the e-book can only be download from Kobo and Google Play. 

Disclaimer & Disclosure

I am not an investment adviser, security analyst, or stockbroker.  The contents are meant for educational purposes and should not be taken as any recommendation to purchase or dispose of shares in the featured companies.   Investments or strategies mentioned on this website may not be suitable for you and you should have your own independent decision regarding them. 

The opinions expressed here are based on information I consider reliable but I do not warrant its completeness or accuracy and should not be relied on as such. 

I may have equity interests in some of the companies featured.

This blog is reader-supported. When you buy through links in the post, the blog will earn a small commission. The payment comes from the retailer and not from you.

Your link text