YESTERDAY (April 11), electronic manufacturing service (EMS) provider ATA IMS Bhd announced that an independent third party auditor “who is one of the Big-Four” has concluded that the group adheres to both local and international labour standards following an assessment conducted over the March 9-25 period.
Short of revealing the identity of the third party assessor, ATA IMS said it was made aware of three main areas of improvement, namely (i) educating its workers about its Zero Cost Recruitment Fee Policy; (ii) increasing awareness on confidentiality of using grievance channels; and (iii) educating its workforce on occupational safety and health administration.
Reacting to this latest development, CGS-CIMB Research is of the view that while ATA IMS stands a relatively better chance on winning potential new customers/projects, concerns abound over the lack of details on the audit findings, the auditor and timeline of sharing the details.
Nevertheless, the positive outcome should alleviate some of the social risks previously present in the company’ operations following the loss of its key customer – British home appliance maker Dyson – in November 2021 owing mainly to the forced labour allegations.
“We believe the audit findings should provide reassurance to ATA’s existing/potential new customers of its adherence to international labour practices,” opined analyst Nagulan Ravi in a company update.
“We expect the negative sentiment surrounding ATA to ease slightly but linger until ATA is able to monetise its audit findings by securing new projects/customers.”
All-in-all, CGS-CIMB Research reiterated its “reduce” rating on ATA IMS but raise the latter’s target price to 36 sen (from 29 sen previously) as:
- The latest findings reduce the research house’s ESG (environmental, social and governance) discount to 10% from 20% previously (mainly to reflect the alleviation of social risks present in the group); and
- The research house raises its P/NTA (price/net tangible asset) valuation to 0.7 times from 0.6 times previously to reflect the company’s relatively stronger footing in its ability to secure new customers/projects.
“We keep our ‘reduce’ call on the stock as we continue to forecast losses for ATA going into FY2023-2024F,” projected CGS-CIMB Research. “We will turn more bullish on its earnings prospects once we see (i) new customer wins; and (ii) clearer signs of its cost-cutting measures bearing fruit going into FY2023F.”
At 10.42am, ATA IMS was up 2.5 sen or 5.75% to 46 sen with 27.07 million shares traded, thus valuing the company at RM554 mil. – April 12, 2022
