Highlights

AmInvest Research Reports

Author: AmInvest   |   Latest post: Mon, 30 Nov 2020, 10:50 AM

 

ATA IMS - Order recovery in quarters ahead

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Investment Highlights

  • We upgrade our recommendation on ATA IMS (ATA) to HOLD from UNDERWEIGHT, with a higher fair value of RM1.47/share, pegged to a CY21F PE of 14x. This is in line with its sector market cap weighted average forward PE (from previously RM1.05/share, pegged to a CY21F PE of 10x) while keeping our forecasts unchanged.
  • Our PE re-rating is premised upon local EMS players’ elevated prospects as potential beneficiaries from the USChina trade war diversion, which has not been significantly disrupted by the Covid-19 pandemic.
  • ATA’s 1QFY21 core profit of RM14mil came in within expectations, after excluding a net gain of RM4mil mainly due to forex gains. We consider the results to be in line with expectations although accounting for 13% of our full-year forecasts and 14% of consensus’ estimates respectively due to impact of the movement control order (MCO) on ATA’s operations as we expect recovery in earnings in subsequent quarters following the easing of Covid-19 restrictions.
  • YoY: 1QFY21 core profit tumbled 36% due to an 11% decline in revenue as the group’s factories were closed since the MCO and operations only resumed at full workforce capacity in early May 2020.
  • QoQ: 1QFY21 core profit rebounded 38% due to a 3% increase in sales orders and amid operational efficiencies after ATA’s factory was allowed to resume production, despite the approximately 1-month impact from limited production capacity as the group adjusted to the Covid-9 prevention measures alongside stricter cost controls.
  • ATA’s current year prospects remain positive despite the ongoing pandemic, as it shared that its key customer’s order forecast remains strong. Meanwhile, its new customers’ projects are expected to commence this year i.e. ecobee, Schneider Electric and Sagemcom which have been in production since July 2020 while cricut’s production is slated to begin in September 2020. In anticipation of stronger demand, the group is acquiring 70 plastic injection molding machines to increase its production capacity. We await the latest updates on its customers’ and operations in a conference call later today.
  • We like ATA due to its positive prospects but believe that the stock is fairly priced. ATA’s positive prospects arise from: (i) it being the purest proxy to its key customer’s growth prospects being the largest contract manufacturer producing the broadest product range; (ii) its efforts towards being vertically integrated, and (iii) its customer diversification opportunities ahead from the US-China trade war diversion

Source: AmInvest Research - 26 Aug 2020

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Chart Stock Name Last Change Volume 
ATAIMS 2.19 0.00 (0.00%) 1,196,900 

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