Investment Highlights

• We reiterate our HOLD recommendation on ATA IMS (ATA) with an unchanged fair value of RM1.83/share pegged to an FY20F PE of 13x. We are also maintaining our forecasts following a site visit to ATA’s Jalan Dewani factory with 189K sq ft production space.

• Key highlights of our visit were as follows: 1. Automation in robotic spraying: Compared with the manual process of spraying used 6-7 years ago, the use of automated machines allow for a more consistent output with a lower rejection rate. Based on 1K of output, each machine’s output is equivalent to that of 20 workers. ATA currently has 15 of such machines spread across three of its facilities. Throughout the processes, quality checks were done both before and after each process.

2. Floorcare products assembly: We witnessed the full assembly line from start to finish for one of ATA’s key customer’s products. The Jalan Dewani factory houses a total of 2-3 floorcare product lines running optimally since April 2018.

3. Automation in component assembly: ATA has three types of automated machines in its facility producing common parts across the key customer’s various product offerings. The machines can take up the work of 30-35 workers and run with one operator operating each automated machine with increased efficiency and improved quality of outputs to fulfil the customer’s order requirements. Automation of its production facilities remains a key focus for the group in the coming years, with more machine types currently being developed.

4. Tour of workers’ dormitory: The dormitory was walking distance from the factory and can house approximately 2,700 workers. We acknowledge ATA’s emphasis on its employees’ well-being as the hostel dormitory was clean and hygienic, and equipped with various facilities such as a counselling room, a fitness centre and an in-house convenience store. We also learned that third-party retailers of some of ATA’s customers would conduct audit checks to ensure compliance with labour requirements.

• Overall, we were impressed with the condition of ATA’s Jalan Dewani factory, although some of its floors are undergoing renovation. To recap, ATA’s FY19 earnings are expected to be boosted by the contribution of its four additional assembly lines in its Jalan Dewani factory. However, we maintain HOLD on ATA as we opine that this earnings boost has been factored in at its current price.

Source: AmInvest Research - 16 Jan 2019