Investment Highlights

• We downgrade our BUY recommendation on ATA IMS (ATA) to HOLD with unchanged forecasts and fair value of RM1.72/share, pegged to a CY19F PE of 13x, following the recent run-up in its share price. Our fair value represents a 6% upside to the current price.

• Here’s an update on its facilities:
  • ATA’s Jalan Dewani factory with 189K sqft of production space currently houses four lines. These are expected to boost FY19 earnings – two for the key customer’s floor-care product which have been running optimally since Apr 2018 and two for the production of a healthy lifestyle product which has commenced in Oct 2018. The factory is able to house an additional two lines.
  • As for the group’s Jalan Hasil factory with 187K sqft production space, ATA is in the midst of discussion with its key customer with regards to securing new orders to fill up its additional capacity at the factory. However, nothing has been firmed yet, as there is limited visibility of new products for its key customer in CY2019.
  • The construction of its additional 116K sqft warehouse is nearly completed as at Oct 2018, increasing warehouse space by 55% to 328K sqft and allowing for better coordination and efficiency in warehousing for the group.
• Moving forward, 2QFY19 results are expected to be in line with our forecasts, with 2Q and 3Q being seasonally stronger quarters for ATA, supported by the four new assembly lines in Jalan Dewani.

• We believe that ATA’s positive earnings prospects have been factored in at the current price. The group’s positive prospects stem from: 1) it being a prime proxy to its key customer’s continuous innovation and robust growth prospects, 2) its position as the largest supplier of filters for its key customer globally, commanding a formidable market share of 80-85%; and 3) its PAT is expected to grow at a stunning 3-year CAGR of 24% for FY18-FY21F, underpinned by higher box-build orders for new products and a margin expansion due to better product mix.

• ATA’s key re-rating catalyst would be the securing of new orders from its key customer for CY2019.

Source: AmInvest Research - 11 Oct 2018