AmInvest Research keeps Hold call on ATA IMS, higher FV of RM2.22

KUALA LUMPUR: AmInvestment Research is retaining its Hold call on ATA IMS with a higher fair value of RM2.22 a share pegged to a higher CY21F price-to-earnings (PE) of 18 times (previously RM1.72 a share, CY21F PE of 14 times).

It said on Friday the higher PE was in line with its electronics manufacturing services (EMS) benchmark forward PE.

“This represents two times premium above with its one-year sector historical forward PE of 16 times to reflect the sector’s brightened prospects.

“The EMS sector is benefitting from the US-China trade war diversion as companies seek to diversify their manufacturing bases to Southeast Asia, accelerated by the Covid-19 pandemic, ” it said.

AmInvest Research pointed out ATA’s 2QFY21 came in within expectations at RM40mil, bringing 1HFY21 core profit to RM54mil after excluding RM16mil mainly from unrealized forex gains.

Despite accounting for 42% of AmInvest Research’s full-year forecasts and 47% of consensus’ estimates respectively, it considered it to be in line.

The research house is still expecting a stronger 2H with normalisation of earnings in quarters ahead, as its key customer’s order forecasts remains strong with new customers’ projects commencing during the financial year.

The group’s key customer’s projects for 2020 are all on track — personal care product commenced production in early 2020, second product launched in July 2020 as scheduled, while the third product has started production in October 2020 (ahead of schedule) with contribution expected to be seen in 4QFY21.

“Customer updates: ATA started production on the customer’s first project in September 2020, while the newly-secured second project for larger cutting machines will begin production in March 2021 – with both projects’ expected annualised revenue to be RM600mil p.a., which we have factored into our forecasts. The group continues to be in active discussion to secure new ODM projects with said customer, ” it said.

AmInvest Research continues to like ATA due to its positive prospects. Nevertheless, it believes that the stock is fairly priced.

ATA’s positive prospects arise from: (i) it being the purest proxy to its key customer’s growth prospects being the largest contract manufacturer producing the broadest product range; (ii) its efforts towards being vertically integrated; (iii) its customer diversification opportunities ahead from the US-China trade war diversion supported by its modular expansion strategy.

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