Investment Highlights

• We upgrade our recommendation on ATA IMS (ATA) to BUY from HOLD with a higher fair value of RM2.07/share (previously RM1.83/share) pegged to a rolled-forward FY21F PE of 14x.

• We keep our forecasts fairly unchanged but have attached a higher PE multiple to reflect ATA’s role as the purest proxy to its main customer’s growth prospects and as its efforts to be vertically-integrated, a move that will enhance its margins and improve its ability to secure future orders and/or customers.

• Following a recent meeting with management, we have gathered the following updates on ATA:

o Private placement: The group recently took a private placement of 5% of its issued share capital to raise RM103mil, of which 74% of the proceeds will be used for working capital and 24% for capital expenditure for its new facilities and production lines. The group has guided that FY20F capital expenditure will be approx. RM50mil.

o Moving towards vertical integration: The group has added on four new capabilities i.e. PCBA, battery pack, wire harness and brush bar assembly in order to be selfsufficient and reduce reliance on external suppliers. Furthermore, being vertically-integrated will put ATA in a better position to secure additional orders and/or customers. The group currently has 8 surface-mount technology (SMT) lines on the private side and plans to increase this to 18 lines by 2HCY19. The SMT lines producing PCBA and battery pack components are expected to be injected into the group by mid-2021. The estimated total savings when ATA is fully selfsufficient in the four new capabilities in the next 2–3 years is RM60–70mil p.a., enhancing margins by 2-3%.

o Additional assembly lines for its key customer on the back of orders’ growth: ATA has secured additional contracts to manufacture new products for its key customer, adding two assembly lines to 14 from 12 by FY20F and increasing its production space by an additional 110K sqft (+10%). Of the two lines, one line is for a household product which commenced production in March 2019 while the other line for a personal care product is expected to commence by Oct 2019. We note that the group’s ISO accreditation for the automotive industry supply chain puts ATA in a better position to secure automotive-related contracts from its key customer.

Investment Highlights

• We upgrade our recommendation on ATA IMS (ATA) to BUY from HOLD with a higher fair value of RM2.07/share (previously RM1.83/share) pegged to a rolled-forward FY21F PE of 14x.

• We keep our forecasts fairly unchanged but have attached a higher PE multiple to reflect ATA’s role as the purest proxy to its main customer’s growth prospects and as its efforts to be vertically-integrated, a move that will enhance its margins and improve its ability to secure future orders and/or customers.

• Following a recent meeting with management, we have gathered the following updates on ATA:

o Private placement: The group recently took a private placement of 5% of its issued share capital to raise RM103mil, of which 74% of the proceeds will be used for working capital and 24% for capital expenditure for its new facilities and production lines. The group has guided that FY20F capital expenditure will be approx. RM50mil.

o Moving towards vertical integration: The group has added on four new capabilities i.e. PCBA, battery pack, wire harness and brush bar assembly in order to be selfsufficient and reduce reliance on external suppliers. Furthermore, being vertically-integrated will put ATA in a better position to secure additional orders and/or customers. The group currently has 8 surface-mount technology (SMT) lines on the private side and plans to increase this to 18 lines by 2HCY19. The SMT lines producing PCBA and battery pack components are expected to be injected into the group by mid-2021. The estimated total savings when ATA is fully selfsufficient in the four new capabilities in the next 2–3 years is RM60–70mil p.a., enhancing margins by 2-3%.

o Additional assembly lines for its key customer on the back of orders’ growth: ATA has secured additional contracts to manufacture new products for its key customer, adding two assembly lines to 14 from 12 by FY20F and increasing its production space by an additional 110K sqft (+10%). Of the two lines, one line is for a household product which commenced production in March 2019 while the other line for a personal care product is expected to commence by Oct 2019. We note that the group’s ISO accreditation for the automotive industry supply chain puts ATA in a better position to secure automotive-related contracts from its key customer.

Source: AmInvest Research - 5 Apr 2019