HIGHEST RETURNS TO SHAREHOLDERS OVER THREE YEARS: INDUSTRIAL PRODUCTS & SERVICES: Ata IMS Bhd (formerly Denko Industrial Corp Bhd) - Enlarged Denko Starts New Chapter As ATA IMS

This article first appeared in The Edge Malaysia Weekly, on December 17, 2018 - December 23, 2018.
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Shares of Johor-based Denko Industrial Corp Bhd — known as ATA IMS Bhd since July — would probably have remained under the radar of investors if not for Singaporean businessman Datuk Seri James Foo Chee Juan’s audacious voluntary takeover offer early last year.

In hindsight, some Denko shareholders may wish they had held on to their shares a little longer rather than selling them off, or accepting Foo’s revised takeover offer of 60 sen a share in February last year. By then, his wholly-owned Oregon Technology Sdn Bhd already controlled more than 52% of the company.

Those familiar with the company would remember the subsequent reverse takeover of sorts in October last year, which saw Denko acquiring larger rival Integrated Manufacturing Solutions Sdn Bhd (IMS) for RM1.19 billion, satisfied via the issuance of 1.03 billion new shares in Denko at RM1.15 each. The purchase price for the related-party transaction was 8.9 times Denko’s market value of RM133.72 million at the time.

With IMS, the enlarged Denko became a top three electronic manufacturing services (EMS) player on Bursa Malaysia, along with SKP Resources and VS Industry Bhd. IMS’ clients include a global household appliance maker — another reason that stoked investors’ interest.

By mid-January this year, Denko shares reached as high as RM2 apiece intra-day and remained near RM1.80 at the time of writing, giving the company a market capitalisation of just over RM2 billion. During the evaluation period of June 30, 2015, to June 29, 2018, alone, its shares gained more than 450% to RM1.43, which translates into a three-year compound annual growth rate (CAGR) of 76.52% — the highest total return among The Edge-BRC member companies in the industrial products and services sector.

At the time of writing, two research houses had a “buy” recommendation on ATA IMS with a target price of RM2 while a third house had a “hold”, with the fair value at RM1.83. It remains to be seen if the company can indeed beat its highest close to date of RM1.95 on Jan 18.

To recap, Foo, 56, was appointed executive chairman and executive director of Denko in March last year, before its name was changed to ATA IMS in July this year.

In the red just two years ago, ATA IMS is now looking to chart record-breaking top and bottom-line figures for the financial year ending March 31, 2019 (FY2019), on a surge of box-built orders from existing customers. Acquiring IMS — a company co-owned by Foo and CEO Datuk Fong Chiu Wan — provided the EMS player a swift boost in earnings as it was able to tap the former’s key customer.

Prior to the completion of the acquisition in February, Denko posted a net loss of RM11.34 million in FY2017 on the back of RM101.6 million in revenue. For the full FY2018, Denko’s net profit grew 16.9% year on year to RM92.51 million while revenue increased 27.2% to RM2.31 billion. It is worth noting that ATA IMS intends to declare a maiden dividend in FY2019 and to pay out at least 35% of its profit.

To improve efficiency and quality through automation, it will allocate RM75 million to RM100 million in capital investment annually for machinery and equipment, to be funded through a combination of internal funds and bank borrowings.

“For FY2019, the growth momentum is still there, but at the same time, we have to look for something in FY2020. We are looking at other business opportunities to grow our revenue in case of any negative sentiment in the market,” Foo told The Edge Financial Daily in July.

Foo said ATA IMS will continue to expand and improve its production capabilities and operational efficiencies despite current economic challenges as it expects a higher volume of orders from existing customers. Interestingly, Foo described Denko’s share price performance as “very reflective”. “Compared with our peers, I think we are still in good shape. We are comfortable with our current share price,” he said.