This article first appeared in The Edge Financial Daily on October 12, 2018
ATA IMS Bhd
(Oct 11, RM1.63)
Downgrade to hold with an unchanged fair value of RM1.72: ATA IMS Bhd’s Jalan Dewani factory with 189,000 sq ft of production space currently houses four lines. These are expected to boost financial year 2019 (FY19) earnings — two for the key customer’s floor-care product which have been running optimally since April 2018 and two for the production of a healthy lifestyle product which commenced this month. The factory is able to house an additional two lines.
As for the group’s Jalan Hasil factory with 187,000 sq ft production space, ATA is in the midst of discussion with its key customer with regard to securing new orders to fill up its additional capacity at the factory. However, nothing has been firmed up yet, as there is limited visibility of new products for its key customer in calendar year 2019 (CY19).
The construction of an additional 116,000 sq ft warehouse is nearly completed, increasing warehouse space by 55% to 328,000 sq ft and allowing for better coordination and efficiency in warehousing for the group.
Moving forward, second quarter of financial year 2019 (2QFY19) results are expected to be in line with our forecasts, with 2Q and 3Q being seasonally stronger quarters for ATA, supported by the four new assembly lines in Jalan Dewani.
We believe ATA’s positive earnings prospects have been factored in at the current price. The group’s positive prospects stem from: i) it being a prime proxy for its key customer’s continuous innovation and robust growth prospects; ii) its position as the largest supplier of filters for its key customer globally, commanding a formidable market share of 80% to 85%; and iii) its profit after tax is expected to grow at a stunning three-year compound annual growth rate of 24% for FY18 to FY21, underpinned by higher box-build orders for new products and a margin expansion due to a better product mix.
A key rerating catalyst would be the securing of new orders from its key customer for CY19. — AmInvestment Bank, Oct 11