A Strong Rebound

• ATA IMS (AIB) reported a good set of results: 6MFY21 core net profit rose by 9% yoy to RM59m tracking ahead of our and street expectations.
• The earnings surprise was predominantly driven by higher sales orders from its key customers and a lower effective tax rate.
• We lift our earnings estimate by 17%-18% for FY21-23E, and raise our TP to RM2.24 based on a higher PER of 19x. Maintain HOLD.

2QFY21 Results – a Record Quarter for AIB

AIB’s 2QFY21 core profit rebounded by more than threefold qoq to RM45m on higher revenue (+80% qoq, largely due to stronger sales orders from its key customer) and a higher EBITDA margin (+2ppts qoq to 6% on better cost and improved efficiency). Recall that 1QFY21 was a challenging quarter for AIB as the Group’s operations (especially April-May20) were impacted by strict Movement Control Order SOPs.

6MFY21 Core Net Profit Rose by 9% Yoy; Exceed Expectations

On a cumulative basis, AIB posted a 6MFY21 core net profit of RM59m (+9% yoy), due to the above-mentioned reasons. Overall, earnings were above consensus and our expectations, accounting for 56%-59% of the respective full-year estimates. The variance to our estimate was due to the higher-than-expected contribution from its key customer and better-than-expected margins. Moving forward, we believe subsequent earnings delivery will remain favourable. AIB is expected to commence production for the 2nd floorcare project for its key customer in Nov20. Besides the key customer, AIB has also started production for its first project with Cricut in Sept20, and was officially awarded a second project for a larger-sized cutting machine which is slated for production in early CY21. AIB also indicated that projects from other customers (ex. Swiftlabs) are also progressing well.

Maintain Hold With Higher TP of RM2.24

We raised our FY21-23E core EPS by 17%-18%, after imputing the higher 6MFY21 results, and raising our margin assumptions. In tandem, we lift our 12-month TP to RM2.24 (from RM1.60) based on a higher target CY21E PE of 19x (from 16x; or +1SD above its 5-year mean). We believe investors will likely remain focused on the EMS s=ector, considering the healthy order flows from the key customer and theme rerouting of the supply chain presented by the escalating trade tensions, and as such PE multiples may remain elevated. However, at a 19x CY21E PER, the valuation looks fair. Maintain Hold. Key upside risks: i) an effective vaccine for Covid-19, and ii) stronger-than-expected demand. Downside risks: i) key customer risk; ii) reliance on foreign labour, iii) higherthan-expected start-up expenses, and iv) an economic slowdown

Source: Affin Hwang Research - 30 Oct 2020