YESTERDAY’S sell-down on the electronic manufacturing sector (EMS) has been heralded as a good opportunity to accumulate stocks in the sector.
Such is the view of Affin Hwang Capital Research following a severe EMS stock bashing which is linked to speculation of migrant worker rights activist Andy Hall assessing the EMS sector on similar grounds as the glove sector.
“We see yesterday’s sell-down, combined with the bad market sentiment as a good opportunity to bargain-hunt on these bashed down stocks,” opined analyst Tan Jianyuan in a sector update.
“Sector EPS (earnings per share) is still poised to grow at 22% in CY2022E driven by secured pipeline, coupled with long-term positive product demand prospects.”
To recap, the Malaysian EMS sector took a heavy beating yesterday with ATA IMS Bhd, SKP Resources Bhd and VS Industry Bhd seeing their share prices plummeting by 18% (by 51 sen to RM2.33), 13% (by 20 sen to RM1.29) and 7% (by 8 sen to RM1.15) respectively.
From its multiple channel checks, Affin Hwang Capital Research gathered that the issue actually centred on the “main customer level” rather than that of the contract manufacturers (CMs).
“From our sources, one of the CMs was approached by Hall but had subsequently diverted this issue to its customer,” shared the research house.
“The underlying concerns at this point in time lies with the possibility of a repeat of Top Glove Corp Bhd’s detention orders as imposed by the US Customs and Border Protection (CBP).”
Interestingly, given that the CMs were unable to guide on their revenue exposure to the US, the matter was however referred to a UK-based “main customer” who is likely to have adopted and adhered to stringent labour laws.
Nevertheless, Affin Hwang Capital Research took comfort that multiple audits are conducted annually on each CM’s value chain to ensure compliance.
“We thus see this situation being completely different than that of glove makers whereby EMS players (including at the customer level) show strong emphasis on staff welfare such as providing a comfortable worker accommodation environment, and bearing foreign labour recruitment fees and levies to name a few.”
Given the short-term overhang until better clarification from companies and amid the fragile market sentiment, the research house has lowered its target price of VS to RM1.64 (post bonus issue) (previously RM3.80), ATA to RM3.06 (from RM3.70 previously) and MTAG Group Bhd to 99 sen (from RM1.04 previously).
“We continue to like the EMS sector as we believe there is no change in fundamentals. The escalation in the trade war will continue to see multinationals shifting their operations out of China, thus benefiting local EMS players,” projected Affin Hwang Capital Research.
“More importantly, we remain positive on the longer-term demand trend for consumer appliances due to higher expectations towards a better quality of living.”
At the close of this morning’s trading session, VS was down 1 sen or 0.87% to RM1.14; ATA was up 4 sen or 1.72% to RM2.37 while MTAG was down 2 sen or 2.74% to 71 sen. – May 21, 2021
