ATA IMS Bhd (Sept 5, RM1.35) Maintain buy with a lower fair value (FV) of RM1.75 (previously RM1.84): We maintain our “buy” recommendation on ATA IMS Bhd with a lower FV of RM1.75 a share (from RM1.84 a share), pegged at a forecast financial year 2021 (FY21F) price-earnings ratio of 14 times after reducing our FY20 to FY22 forecasts by 5% as we adjusted our margin assumptions in line with guidance.
We attended ATA’s first quarter (1Q) of FY20 results briefing and came away with some key highlights.
Its 1QFY20 core profit came in at RM25 million, lower by 20% year-on-year (y-o-y) despite revenue soaring 45%, attributable to lower efficiency and productivity amid the festive season, newer models having higher material contents and higher start-up costs associated with new assembly lines.
The group’s subsequent quarters are expected to improve, with 2QFY20 expected to be stronger than 1QFY20. ATA’s order growth momentum of 15% y-o-y for its key customer is intact, with the addition of one household product which began production in March as well as a personal care product targeted for production from November. Margins for 3QFY20 are anticipated to remain sturdy despite commencing the production of the personal care product due to expectations of strong orders. Having already accounted for the weak 1QFY20 results, the group guided that its full-year profit before tax margin will be above 4.5%.
The group managed to secure an additional contract from the key customer, which is likely to begin production in FY21. The box-build order volume from its existing customer is expected to remain robust as the addition of new products is anticipated to offset a natural slowdown in some of the key customer’s older product orders reaching their end-of-product life cycles.
Through a new strategic partnership with Canada’s Swift Labs, which specialises in wireless and Internet of Things (IoT) product development and testing services, ATA aims to extend its capabilities to include the IoT and collaborate with Swift Labs for original design manufacturing in the future.
There are also new customer diversification opportunities arising from the US-China trade war. The group is in the quoting and feedback stage for some prospective customers, some of which are IoT-related manufacturers. ATA is looking at the IoT customer segment as the products usually consist of a good blend of electronic and mechanical components, fitting well with the group’s vertically integrated capabilities.
As for ATA’s vertical integration efforts, Microtronics Technology Sdn Bhd currently has 14 surface-mount technology lines catering for approximately 60% of ATA’s printed circuit board assembly (PCBA) and battery pack requirements. Four lines are expected to be added by end-calendar year 2019 (CY19). To develop self-sufficiency and reduce purchases from external suppliers, the aforementioned PCBA capability will be injected into ATA by mid-CY21.
Meanwhile, ATA has submitted brush bar samples to undergo reliability tests, while its wire harness capability requires certain certifications, with its site being audited by the key customer. Production of both is expected to begin in CY20.
So far, ATA has utilised approximately 73% (RM40 million) of its FY20 capital expenditure of RM55 million for plastic injection molding machines of different tonnages in its new facility. The group plans to invest continuously in automation to improve its production efficiencies.
We reiterate our “buy” recommendation on ATA due to its positive prospects arising from: i) it being the purest proxy for the key customer’s growth prospects; ii) its move to become a vertically integrated player that would improve margins and put it in a better position to secure orders and/or customers; and iii) its positive growth trajectory with a three-year core profit compound annual growth rate of 17% for FY19F to FY22F, underpinned by its modular expansion strategy. — AmInvestment Bank, Sept 5
For short term maybe yes. But for long term, dyson will think of ways to sell more vacuums to recover back the loss. Since they will focus more on household products for now, more orders to ATA.
pegged at a forecast financial year 2021 (FY21F) price-earnings ratio of 14 times after reducing our FY20 to FY22 forecasts by 5% as we adjusted our margin assumptions in line with guidance.
We attended ATA’s first quarter (1Q) of FY20 results briefing and came away with some key highlights.
Its 1QFY20 core profit came in at RM25 million, lower by 20% year-on-year (y-o-y) despite revenue soaring 45%, attributable to lower efficiency and productivity amid the festive season, newer models having higher material contents and higher start-up costs associated with new assembly lines.
Don't buy ATAIMS, top 30 shareholders of ATAIMS hold 84.13% of the company's shares, so the stock market circulation is small and SUBJECT TO MANIPULATION.
Latest quarterly earnings have been reflected in the share price pre announcement. Hence, there was no big gap up yesterday. Valuation seems rich at this P/E.
Obviously, towards year end last quarter will be slow for Christmas and New Year, following to Corvid 19, a little jerks. But with new models and increase of qty will move to better position now.
Are you aware that ATA or Dyson can file defamation charges on you for damaging the reputation or group by saying or writing bad things about them that are not true ?
As an investor, it is at least worth your time to listen to what everyone is saying and wonder: Can they all really be right?
For your information : ATA IMS is ready with a clear plan of how they are going to go about working toward to overcome the challenges of the current situation.
More likely this counter will not see lower price anytime soon.
Baby Shark, can share how share how to make 500k in ATA. This counter only briefly touched above 1.2 to a high of 1.25 and daily volume is relatively low (below 1 million daily). Appreciate sifu share some insights.
But Sifu Baby Shark, only on 17/4 and 20/4 it was at 1.2 above and based on volume chart the amount don't tally. Sifu off market trade ah? 500k good gain. Happy for you
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
Patrick13
1,971 posts
Posted by Patrick13 > 2019-06-05 21:58 | Report Abuse
In the latest QR Note 23, it stated that "The Board will announce their recommendation on the dividend at a later date."