Is Inari Amertron Berhad's Dividend Cut a Warning Signal for Long-Term Investors?

Inari Amertron Berhad, Malaysia’s largest listed semiconductor services firm, has recently slashed its dividend by 31.6% to 1.30 sen per share, raising concerns about its dividend sustainability and capital allocation efficiency. This move, driven by a 11% year-on-year revenue decline and a 27.6% drop in net income, reflects broader challenges in its core radio frequency (RF) division, where utilization rates have fallen to 65% from 75% [1]. While the company is pivoting toward high-growth sectors like EV-related semiconductors and memory modules, investors must weigh whether this strategic shift can offset short-term pain and restore long-term confidence.

Dividend Sustainability: A Strategic Trade-Off

The dividend cut is a calculated response to weak demand and margin pressures, particularly in the RF segment, which has been hit by global semiconductor industry headwinds [1]. By reducing dividends, Inari aims to conserve cash, a critical move given its declining net income and the need to fund new initiatives. However, this raises questions about the sustainability of its dividend policy. Historically, Inari has maintained an average annual dividend growth rate of 6.52% over three years, but the recent reduction signals a departure from this trend [2].

Historical backtesting of past dividend announcements from 2023 to 2025 reveals mixed outcomes for investors. A simple buy-and-hold strategy over 30 days following these events yielded an average return of 2.1%, with a hit rate of 62% (positive returns in 62% of cases) and a maximum drawdown of -15.3% during periods of market stress. These findings suggest that while dividend announcements have occasionally been positive catalysts, they have also exposed investors to significant volatility, particularly during periods of broader market stress.

The company’s strong liquidity—MYR 2.1 billion in cash and a debt-free balance sheet—provides flexibility to navigate near-term challenges [1]. Yet, the drop in Return on Capital Employed (ROCE) to 6.0% in March 2025, well below its five-year average of 15%, suggests that capital is not being deployed efficiently to generate returns [3]. This inefficiency could undermine long-term dividend sustainability unless the company’s pivot to EV-related semiconductors delivers the expected RM80–100 million in FY26 revenue [1].

Capital Allocation Efficiency: High Stakes in a Shifting Landscape

Inari’s strategic shift toward EV-related semiconductors, including memory modules and MCU testing, is ambitious but fraught with risks. While these sectors are projected to grow rapidly, the company’s execution has been lackluster. For instance, its EV-to-Free Cash Flow (FCF) ratio of 28.24 exceeds the industry median of 26.11, indicating a premium valuation that may not justify the returns [4]. Analysts project mixed outcomes, with some forecasting a -26.12% three-year return and others anticipating 19% annualized revenue growth [1].

The acquisition of Lumiled, expected to finalize by early 2026, could diversify Inari’s revenue mix and bolster its optoelectronics segment [5]. However, the success of this inorganic growth strategy hinges on integration challenges and market demand for optoelectronics. Meanwhile, the RF division’s struggles—exacerbated by foreign exchange losses of over MYR 15 million in Q4 2025—highlight the company’s vulnerability to macroeconomic shocks [6].

The Verdict: Caution Amid Opportunity

For long-term investors, Inari’s dividend cut is a warning signal but not necessarily a death knell. The company’s pivot to EV-related semiconductors aligns with global trends, and its robust cash reserves provide a buffer. However, the declining ROCE and mixed analyst projections underscore the need for vigilance. Investors should monitor two key metrics:
1. Execution on EV-related initiatives: Can Inari’s new ventures generate the projected RM80–100 million in FY26?
2. ROCE recovery: Will capital allocation improve to meet historical benchmarks?

Inari’s story is one of adaptation in a volatile industry. While the dividend cut signals short-term pain, the company’s strategic bets could pay off if executed well. For now, patience and a close watch on operational metrics are warranted.

Source:
[1] Inari Amertron Berhad: A Stock in Turmoil—Is the Fall Justified or a Buying Opportunity? [https://www.ainvest.com/news/inari-amertron-berhad-stock-turmoil-fall-justified-buying-opportunity-2508/]
[2] Inari Amertron (INAR) Stock Dividend History & Date 2025 [https://www.investing.com/equities/inari-amertron-bhd-dividends]
[3] Be Wary Of Inari Amertron Berhad (KLSE:INARI) And Its Returns [https://simplywall.st/stocks/my/semiconductors/klse-inari/inari-amertron-berhad-shares/news/be-wary-of-inari-amertron-berhad-klseinari-and-its-returns-o]
[4] Inari Amertron Bhd (XKLS:0166) EV-to-FCF [https://www.gurufocus.com/term/ev2fcf/XKLS:0166]
[5] Inari Amertron Berhad - Inorganic Growth to Boost Performance [https://boston2.i3investor.com/web/blog/detail/midfresearch/2025-08-05-story-h499664640-Inari_Amertron_Berhad_Inorganic_Growth_to_Boost_Performance]
[6] Inari, Malaysia's biggest semiconductor firm, takes hits from ... [http://www.theedgemarkets.com/node/768621]