KUALA LUMPUR (June 16): AmInvestment Bank Bhd said today Malaysia’s electronic manufacturing services (EMS) sector's prospects are positive amid expectations of strong order flow from multiple customers supported by capacity expansion plans despite the EMS industry contending with the impact from Covid-19-driven movement restriction policies to curb the spread of the pandemic.

AmInvestment analyst Dalilah Fairoz wrote in a note today that despite the Covid-19 pandemic, the EMS sector’s order forecasts remain strong across multiple customers.

"We have an 'overweight' recommendation on the sector but we may downgrade the sector to 'neutral/underweight' if: (i) Covid-19 weakens global economic conditions which could potentially dampen demand in customers’ products, especially if vaccine progress is delayed; (ii) labour issues arise relating to labour costs and worker shortages; (iii) sudden loss or orders and/or key customers; and (iv) worsening performance of overseas operations due to longer-than-expected recovery in sales orders.

"The sector has been a beneficiary [of strong order flow] as companies diversify their supply chains away from China and into Southeast Asia, leading to the securement of higher orders and/or new customers. In our view, the pullback in share prices following recent news flow presents a window of opportunity for investors,” Dalilah said.

AmInvestment’s Malaysia EMS sector coverage comprises only ATA IMS Bhd, according to Dalilah.

She said AmInvestment’s top pick in the EMS sector is ATA IMS due to factors including ATA IMS' role as the purest proxy to its main customer’s growth prospects by virtue of being its customer’s largest contract manufacturer.

"We prefer ATA IMS as the recent correction in its share price presents an opportunity to accumulate the stock,” she said.

AmInvestment has a "buy" call for ATA IMS shares with a target price of RM3.34, according to her.

On Bursa today, ATA IMS' share price rose nine sen or 3.4% at 11:26am to RM2.74, which gives the group a market capitalisation of about RM3.29 billion.

ATA IMS has 1.2 billion issued shares.