THERE is little reprieve for ATA IMS Bhd which is currently embroiled in a labour abuse allegation as AmResearch has further downgraded its fair value to 30 sen (from 56 sen previously) while reiterating a “sell” call.
The research house said its change in valuation largely stems from concerns of assets overhang after the loss of the company’s major customer (Dyson) which accounts for 80% of the group’s sales (and has recently terminated its contract with the company) as well as potential goodwill impairment.
“We maintain our cautious stance on the outlook for ATA,” AmResearch pointed out in a company update.
“While efforts have been made to mitigate the damage to its reputation and recoup investors/stakeholders’ confidence, we reckon any concrete progress/results from the proposed solutions can only be seen over the medium term (six to nine months) with no guarantee of a positive outcome.”
As such, AmResearch opined that the company’s short-term operational risks remain high.
This largely stems from the ongoing manpower shortage crisis, forced labour allegation, potential assets overhang, diseconomies of scales and dented reputation which intensify the challenges in securing new customers and orders.
“As such, we do not share the company’s optimistic post-June 2022 guidance of a pre-tax profit margin of 5% and maintain our loss forecasts in FY2022F–2024F,” justified the research house.
Moving forward, AmResearch foresees only organic growth from the group’s existing remaining customers coupled with some small new orders to be secured in FY2023F and FY2024F at a gross profit margin of 2%–2.5% in FY2023F–2024F (vs 1H FY2022 of 4.4%) from diseconomies of scale.
“In our view, ATA may not be in the most favourable position to negotiate with potential new customers,” opined the research house. “Hence, we believe ATA’s recovery from the current crisis will be bumpy, exacerbated by the ongoing labour shortage crisis.”
Having endured two successive limit down sessions on Nov 25 and 26, ATA which is currently the volume leader on Bursa Malaysia was down 5.5 sen or 10.58% at 11.07am to 46.5 sen with 620.18 million shares traded, thus valuing the company at RM560 mil.
The stock which closed at 52 sen yesterday (Nov 29) was traded within a range of 38 sen and 50 sen thus far today. – Nov 30, 2021
