ATA IMS Bhd has probably gone into the record book as one of the few listed issuers on Bursa Malaysia whose share price went “instantaneously limit down” upon opening of a new trading day.
The electronic manufacturing services (EMS) provider commenced today’s trading at 52 sen, down 30 sen or 36.59% which slashed its market capitalisation by almost RM300 mil to RM626 mil.
For the record, ATA IMS’ slide started mid-way of yesterday’s (Nov 25) morning trading when news broke out that the company’s major client, Dyson (the British firm famed for its high-tech vacuum cleaners), has terminated its relationship with the company following an audit of its labour practices and allegations by a whistleblower.
Despite the looming uncertainties at ATA IMS, RHB Research retains its “overweight” stance on the EMS sector with a near- to mid-term positive assuming the ensuing reallocation of ATA’s production lines to other existing contract manufacturers.
“For illustration purposes, we estimate VS Industry Bhd’s FY7/2023F and SKP Resources Bhd’ FY3/2023F earnings to be lifted by 12% and 25% should the jobs be distributed evenly,” opined analyst Soong Wei Siang in an EMS sector update.
“We understand that VS Industry presently has spare capacity to absorb the new jobs but SKP Resources’ capacity is fully occupied until the expansion of new capacity by end-2022.”
On a cautious note, however, RHB Research holds the view that ATA IMS’ termination may prompt key customers to de-concentrate its exposure and dependence on Malaysian suppliers over a longer term.
“This is considering the heavy reliance on migrant workers and potential emergence of labour issues that could pose risks to the key customer’s brand image and reputation,” asserted the research house.
“That said, we believe the key customer’s fast growth pace after taking into account the diversification is still strong enough to underpin the robust job flows for both VS Industry and SKP Resources to prosper.”
As a whole, RHB Research doubted that a total exit is likely at this juncture given the established supply chain in place as well as the expertise and multi-year track record of the Malaysia-based contract manufacturers. – Nov 26, 2021
