ATA IMS Bhd, a provider of electronics manufacturing service (EMS) to renowned global brands, is likely to encounter workforce shortage issue which will take its toll on production output.
In its latest assessment of the company, CGS-CIMB Research said AT IMS’ output in 1Q FY3/2022 and part of 2Q FY3/2022F have been impacted by strict standard operating procedures (SOP) whereby it could only operate at 60% of its total workforce capacity.
Such requirement came to being since the imposition of the MCO (movement control order) 3.0 beginning May 12 till the full MCO beginning June 1, which is still in place today, according to the research house.
“We gather that progressive relaxation of restrictions will be allowed once its workforce is at least 80% vaccinated,” noted analyst Syazwan Aiman Sobri in a results review. “ATA is targeting to ramp up its employee vaccination rates to achieve full production capacity in approximately four to six weeks from now.”
In CGS-CIMB Research’s view, ATA IMS’ 1Q FY3/2022 core net profit of RM23.3 mil (+31.3% year-on-year; -13.9% quarter-on-quarter), came in below its expectations mainly due to weaker-than-expected revenue and margins due to workforce capacity limitations.
Nevertheless, the research house kept its “add” call on the counter with a lower target price of RM3.10 (from RM3.25 previously) after slashing its FY3/2022-3/2024F earnings per share (EPS) forecasts by 3.1%-9.8% to factor in lower production output due to the longer-than-expected workforce limitations going into 2Q FY3/2022F.
“The company’s key downside risks include (i) imposition of Withhold Release Order (WRO) by the US Customs and Border Patrol (CBP) due to labour issues; and (ii) a prolonged period of reduced workforce capacity due to movement control orders,” added CGS-CIMB Research.
Meanwhile, AmResearch also maintained ATA IMS a “buy” rating with a fair value of RM3.34/share while continuing to like its medium-to-longer term positive prospects arising from:
- It being the purest proxy to its main customer’s growth prospects;
- Its efforts towards being vertically integrated;
- Customer diversification opportunities arising from the US-China trade war diversion which is supported by the group’s modular expansion strategy.
At 12:09 pm, ATA IMS was down 2 sen or 0.74% to RM2.68 with 1.82 million shares traded, thus valuing the company at RM3.23 bil. – Aug 27, 2021
