• Prospect remain promising with existing customers revising up sales guidance despite the pandemic and with ongoing bids. AIB will see its floor space increase by 23% with rented warehouse and expansion of the Pasir Gudang factory; new injection moulding equipment is expected to be ready by end-2020
• Expect revenue growth to continue in the coming quarters with production commencing for the second model of its US crafting machine customer
• Upgrade to a Buy as we raise our target price to RM2.45 (from RM2.24)

Customer Demand Pipeline Looks Promising

ATA IMS (AIB) expects its customer orders to remain robust moving into FY22. Production for its key customer had started for the first floor care product in July-20 with that of the second floor care product targeted to commence in November 2020. AIB was awarded with a total of 3 products this year, with personal care having commenced from March 2020. Despite the ongoing pandemic, AIB believes that strong demand will be sustained into next year with bidding already opened for next year’s launch. The US crafting machine customer revised its initial orders higher by 67% (from RM600m to RM1bn) on the back of a better market response. The second model is slated to begin production in early 2021. On top of the two existing models, AIB is currently bidding for another new model, which would fetch a higher margin being ODM in nature.

Looking at New Expansion Areas

AIB is looking to further expand its customer base, highlighting possible ventures into medical devices and equipment in the long term. This is lucrative due to the higher contract values and profit margins. AIB’s PCBA unit had also recently received ISO certification, which will enable it to do PCBA and assembly for non-invasive medical devices. On news of a possible entry into the glove manufacturing space, AIB guided that there are no concrete plans at this juncture.

Raising EPS by 5%-11%; Upgrade to BUY

We raise our FY21-23E EPS by 5%-11% to factor in the US customer’s higher orders and higher margins from its self-sufficient PCBA unit. We raise our 12-month target price to RM2.45 (from RM2.24) pegged to an unchanged 19x CY21 EPS. An upgrade to Buy is warranted given the solid order prospects, with ongoing rerouting in the supply chain as a long-term catalyst. Downside risks could arise from lower-thanexpected margins, higher-than-expected start-up expenses and possibility of another lockdown affecting operations

Source: Affin Hwang Research - 5 Nov 2020