Investment Highlights

• We maintain our UNDERWEIGHT recommendation ON ATA IMS (ATA) with a higher fair value of RM1.05/share (previously RM0.98/share), pegged to an unchanged CY21F PE of 10x.

• We raise our FY21F–FY22F forecasts by 4–18% to account for higher guided PBT margins premised on the effects of its vertical integration efforts and cost rationalization in 4QFY20 which has improved its capacity utilization

• Key takeaways from ATA’s 4QFY20 results conference call are as follows:

Results summary: FY20 core profit of RM79mil slumped 31% YoY, impacted by factory closures due to the movement control order (MCO) despite revenue rising 15% YoY on higher sales orders. PBT margins deteriorated to 3.2% (vs 5.2% in FY19) due to: (i) operating costs still being incurred despite production halts; (ii) production delays and initial learning curve for newer models; (iii) higher material content costs; and (iv) higher marketing and hiring expenses related to its new customers’ projects.

Key customer project pipeline for FY21: The group secured two new projects, one of which was delayed by approx. 5 months to July 2020 due to travel restrictions affective approval process, while the other project is slated to begin production end-2020. Meanwhile, a 3-month order visibility for its key customer remains strong.

• Vertical integration updates:

o Brush bar: ATA is currently running near full capacity, producing 30% of its requirements on two machines with plans to commission one more machine with larger capacity. The group’s target is to produce 60–70% in-house.

o Wire harness: Production has started for its new customers cricut and ecobee. However, production for its key customer is pending sample approval due to delays relating to Covid-19.

o PCBA and battery pack: PCBA production currently meets 90% of ATA’s requirements on 14 surface mount technology (SMT) lines while battery pack production has been fully selfsufficient since June 2020. Plans to inject the capabilities into ATA is still intact for 2021

Source: AmInvest Research - 3 Jul 2020