Investment Highlights

• We maintain our BUY recommendation on ATA IMS (ATA) with unchanged forecasts and fair value of RM2.02/share, pegged to a CY21F PE of 14x.

• We came away from the group’s 2QFY20 results briefing with the following key highlights: 1. 2QFY20 results recap: ATA recorded its highest quarterly revenue to date of RM932mil, contributed not only by the key customer’s new household product line that began in March 2019 but an overall increase in sales. PBT margin recovered to 4.4% in 2QFY20 (vs. 3.9% in 1QFY20) amid better efficiency and higher yield on its new lines. The group guided for a full-year FY20F PBT margin of around 4.4%, with an effective tax rate of 24% expected.

2. Secured five new customers in providing turnkey manufacturing solutions: ATA has secured five customers namely Sagemcom, Schneider Electric, Swift Labs, ecobee and cricut to begin production in CY2020 (more details in Exhibit 1). ATA has rented a 250K sq ft site dedicated for non-main customer projects, where the facility will be used for plastic injection moulding, final assembly and warehousing purposes.

The combined topline contribution from these customers is expected to be around RM150mil to RM200mil in the first year of production. We keep our forecasts unchanged as we have already factored in topline growth in FY21F, which is in line with the guidance given.

The group will still focus on new customer diversification moving ahead and is in the midst of discussion with multiple prospects.

3. Secured two more projects from its key customer for CY2020: On top of the household product that started production in 1QFY20 and the personal care product that will begin production in December 2019, ATA has managed to secure two additional projects in the pipeline for its key customer – one is a floor care product to commence production in April 2020 and the other is a light product which has commenced production.

4. 4QFY20 a key milestone for vertical integration efforts:

• Its wire harness capability is scheduled for an audit with the main customer in 4QFY20 and is then expected to start production in the same quarter. Meanwhile, its brush bar assembly is already in production with plans to increase capacity and be fully self-sufficient by 4QFY20.

Source: AmInvest Research - 26 Nov 2019