KUALA LUMPUR (May 28): Analysts remained positive on the outlook of electronics manufacturing services provider ATA IMS Bhd due to its strong customer orders.
AmInvestment Bank Research’s analyst Dalilah Fairoz said in a note today that despite the reimposition of the movement control order (MCO 3.0) with stricter standard operating procedures (SOPs) from May 12 to June 7, she believed the group’s prospects remain positive as its main customer’s order forecasts remain strong and its new customers’ projects commence during the year.
She also noted that ATA IMS is planning on increasing capex to expand its production capacity as it is looking to build another 200,000 square feet factory to cater for higher orders.
“The group will continue to comply strictly with SOPs and ensure that the Covid-19 impact on its operations is minimized,” she said.
After factoring in the potential impact from MCO 3.0, she viewed that the correction in ATA IMS’ share price presents an opportunity to accumulate the stock.
“We continue to like ATA IMS for its medium- to longer-term positive prospects arising from: (i) it being the purest proxy to its main customer’s growth prospects; (ii) its efforts towards being vertically integrated; and (iii) customer diversification opportunities arising from the US-China trade war diversion which is supported by the group’s modular expansion strategy,” she said.
She also said the group’s core profit of RM150 million for the financial year ended March 31, 2021 (FY21) exceeded her and consensus FY21 estimates by 9% and 12% respectively.
She maintained her "buy" recommendation on ATA IMS with unchanged forecasts and fair value of RM3.34 per share, pegged to an FY23 forecast price-earnings (PE) of 18 times.
Meanwhile, CGS-CIMB’s analyst Syazwan Aiman Sobri said in a note today that based on the latest SOPs under MCO 3.0, ATA IMS is required to operate at a maximum of 60% of its workforce capacity.
“While this could negatively impact its revenue in 1QFY22, we think this is manageable, assuming the limitations do not extend beyond one month.
“We gather that ATA IMS will look to minimise the impact on production output by reorganising shifts during the MCO period,” he said.
According to him, the order outlook from ATA IMS' customers appears to be robust with the production of newer product models for its largest customer and growing orders from its newer customers.
He also noted that its FY21 core net profit came in slightly above expectations, mainly due to better-than-expected revenue in 4QFY21.
He cut the company's FY22 to FY23 earning per share by 1% to 1.8%, mainly on housekeeping matters.
He kept his "add" call on the stock with an unchanged target price of RM3.25, based on 18 times 2022 forecast P/E, in line with its average P/E since the acquisition of IMS Group in February 2018.
“A potential re-rating catalyst [would be a] favourable resolution to the issue of forced labour allegations and the securing of new customers,” he said.
Despite better-than-expected results, ATA IMS shares fell 11 sen or 4.4% to RM2.39 at 11.49am.
Last Thursday (May 20), the group was bogged down by heavy selling with its share price tumbling nearly 18% or 51 sen to close at RM2.33, as the US Customs and Border Protection's (CBP) decided to initiate an investigation into the company, which has been accused of using forced labour.
The group, however, denied the allegations of forced labour.