• Firm order flows from key customer to underpin FY21E revenue growth.
• Any potential contract wins from new customers as a result of US-China trade tension and lockdowns could provide upside to our earnings forecasts.
• Reaffirm BUY with an unchanged TP of RM1.40. AIB is one of our country and sector top picks.

New product launches and healthy product pipeline with key customer

We are upbeat to learn that AIB has started production for one of the two floor-care product projects in July-20, and we expect the key customer to reveal this new product in the coming weeks. Despite the increasing numbers of Covid-19 cases in key markets, the near-term orders from the key customer are still firm. In addition, we think the re-imposed lockdowns in the Philippines may prompt the key customer to shift some orders to Malaysian EMS players, and we believe AIB stands to benefit the most, as the purest proxy to this key customer.

More customers signing up with AIB, thanks to trade tension and lockdowns

AIB alluded that projects from new multinational customers are progressing well, except for Swiftlabs. We estimate the total contribution from these new customers to reach c.RM100m in FY21E. Elsewhere, AIB became an approved supplier recently for another customer that specialises in household products (does not compete directly with the existing key customer). AIB’s ability to clinch these customers in such a short time span is a testament of its ability and solid execution, in our view. Any potential contract wins from new customers as a result of the USChina trade tension and lockdowns could provide upside to our earnings forecasts.

Better efficiencies and vertical integration to enhance long-term margins

Over the long haul, we continue to expect gradual margin improvement on: 1) improving economies of scale and better operating efficiencies post the learning curve as the new assembly lines go into full swing, and 2) vertical integration.

Reiterate BUY with unchanged 12-month TP of RM1.40

AIB remains one of our country and sector top Buy picks with a target price of RM1.40, based on a 16x CY21E PER. Although AIB’s share price has lagged behind its EMS peers’, we think the Ytd price performance gap should narrow as new order flows and customers improve earnings visibility ahead. We believe AIB is the best proxy to the key customer, thus the share-price weakness offers a good opportunity for investors to ride the growing demand of that customer’s household appliances. AIB is also likely to benefit from the rerouting of supply chains.

Source: Affin Hwang Research - 6 Aug 2020