AmInvestment upgrades ATA IMS, raises fair value to RM2.07

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KUALA LUMPUR (April 5): AmInvestment Bank Research has upgraded ATA IMS Bhd to "buy' at RM1.72 with a higher fair value of RM2.07 (from RM1.83) pegged to a rolled-forward FY21F price earnings (PE) of 14x.

In a note today, the research house kept its forecasts fairly unchanged but attached a higher PE multiple to reflect ATA's role as the purest proxy to its main customer's growth prospects and its efforts to be vertically-integrated, a move that will enhance its margins and improve its ability to secure future orders and/or customers.

AmInvestment said ATA recently took a private placement of 5% of its issued share capital to raise RM103 million, 74% of which will be used for working capital and 24% for capital expenditure for its new facilities and production lines.

It said the group has guided that FY20F capital expenditure will be approximately RM50 million.

The research house said the group has added on four new capabilities, i.e. printed circuit board assembly (PCBA), battery pack, wire harness and brush bar assembly, to be self-sufficient and reduce reliance on external suppliers.

"Furthermore, being vertically-integrated will put ATA in a better position to secure additional orders and/or customers.

"The group currently has eight surface-mount technology (SMT) lines on the private side and plans to increase this to 18 lines by 2HCY19. The SMT lines producing PCBA and battery pack components are expected to be injected into the group by mid-2021. The estimated total savings when ATA is fully self-sufficient in the four new capabilities in the next 2-3 years is RM60-70 million per annum, enhancing margins by 2-3%," it said.

The research firm is positive on the recent developments and recommend a buy on ATA due to the group being the purest proxy for its key customer's growth prospects, as ATA is the key customer's largest contract manufacturer producing the broadest range of products; ATA's move to become a vertically-integrated player; and the group's positive growth trajectory with a two-year compounded annual growth rate (CAGR) of 13% from FY19F-FY21F underpinned by its modular expansion strategy.

At 10.32am, ATA added 0.58% or 1 sen to RM1.73 with 164,00 shares traded.