THE woes of ATA IMS Bhd is far from over as the electronic manufacturing service (EMS) provider continues to undertake cost-cutting and downsizing measures, and is currently re-selling its excess stock back to its key customer.
According to CGS-CIMB Research, the group expects inventory relating to the key customer (presumably (British home appliance maker Dyson) to be cleared over the next one to two months (June-July 2022).
More recently on April 11, ATA IMS even announced that an independent audit conducted by a third-party auditor concluded that the company adhered to both local and international labour standards.
“While we think this provides ATA a relatively better chance of courting potential new customers/projects, we are still concerned given the lack of details on the audit findings, the auditor, and timeline in sharing the details so far,” opined analyst Nagulan Ravi in a results review.
Reflecting its grim and highly uncertain earnings prospects, CGS-CIMB Research has reiterated its “reduce” rating on ATA IMS with a lower environmental, social and governance (ESG) target price of 25 sen (from 36 sen previously).
“We would turn more bullish on earnings prospects once we see new customer wins or clearer signs of cost-cutting measures bearing fruit,” justified the research house.
According to CGS-CIMB Research, ATA IMS booked negative operating margins for the first time in its 4Q FY3/2022 due to suboptimal production rates following the loss of its key customer).
As a whole, ATA IMS posted a FY320/2022 core net profit of RM4.2 mil (-97% year-on-year [yoy]) which came in above the research house/Bloomberg’s consensus full-year expectations of RM3.3 mil/RM200,000 in earnings.
Meanwhile, its revenue edged down 55% yoy to RM431 mil in 4Q FY3/2022 as the company continues to suffer from depressed utilisation rates for its production capacity owing mainly to the loss of its key customer as well as labour and component shortage issues.
Elsewhere, UOB Kay Hian Research also slashed its target price of ATA IMS to 30 sen (from 34 sen previously) while retaining its “sell” rating on the company.
“The re-rating catalysts are clearer remedy on resolving labour issues, new major contracts wins, group restructuring on leaner operations post major contracts termination,” noted analyst Desmond Chong.
“We believe the group might not be able to recuperate fully in a short time span given the ongoing restriction of foreign worker recruitment. Meanwhile, the management has previously noted that it is not looking to hire contract workers to make up for the manpower vacuum.”
To re-cap, ATA IMS announced that it had received notices of termination on Nov 24 last year from its main customer’s (Dyson) operations and manufacturing entities (which contributed more than 80% of its FY3/2021 revenue).
At the close of today’s mid-day trading, ATA IMS was down 1 sen or 3.03% to 32 sen with 11.10 million shares traded, thus valuing the company at RM385 mil. – June 1, 2022
