• ATA IMS (ATA) results tracked expectations, meeting 75% and 77% of our and consensus forecasts
• 3QFY21 revenue declined qoq subsequent to a high base in the previous quarter due to order back-logs, but better product mix helped drive overall margins higher, leading to qoq improvement in profit
• Maintain Buy with an unchanged target price of RM3.50, based on 26x CY21E PER

Results in Line

ATA’s 3QFY21 core net profit grew nearly 2x yoy to RM43m on the back of a 36% increase in revenue, driven by stronger sales orders from its key customer. This pushed 9MFY21 profit 42% higher yoy to RM98m, which was in line with our and consensus expectations. 4Q is seasonally a weak quarter for ATA, after a strong 2Q-3Q, but future quarters are expected to see stronger contributions on the back of a production ramp-up for its second floor-care product and second crafting machine from its US based customer.

Sequentially Weaker on Normalized Back-log

ATA’s revenue fell 12% sequentially in 3QFY21, as expected, given the high order backlog which was fulfilled last quarter, post the lifting of the Movement Control Order in May 2020. However, the better product mix helped drive a 1ppt improvement in EBITDA margin, leading to core net profit increasing by 7% qoq.

Reiterate BUY, TP: RM3.50

Subsequent to its previous 378k sf expansion in Pasir Gudang, management is in the midst of sourcing for another new factory with c.150k-300k sf floor space, which will expand current capacity by another 8-15%, to cater to the higher orders from both its key and new customers. This is positive news as it signals a promising nearterm outlook underpinned by robust volume growth and potential new customers underway. Our investment thesis remains, as we continue to be positive on the EMS sector with key customer order flows guided to remain healthy and growing, coupled with a strong thematic play of MNCs continuing to divert their operations to Southeast Asia (SEA) with Malaysia being a hotspot. Maintain our BUY rating and target price of RM3.50, based on 26x CY21E PER.

Key downside risks include unforeseen factory closures as a result of an unforeseen virus outbreak among its workers, lower-than-expected orders flow from existing customers and delay in securing new customers.

Source: Affin Hwang Research - 24 Feb 2021