R e g i o n a l M o r n i n g N o t e s Wednesday, 03 March 2021

COMPANY UPDATE BUY

ATA IMS (AIB MK) (Maintained)
Riding High On Key Customers’ Aggressive Expansion Share Price RM3.15
Target Price RM3.50
As the preferred partner of its main customer, ATA continues to see higher loadings
riding on the customer’s aggressive expansion which will see the volume doubling in Upside +11.1%
five years’ time. It is also deriving alpha growth from trade diversion-related orders, (Previous TP RM3.10)
which would dilute its customer concentration. We increase our FY21-22 earnings
COMPANY DESCRIPTION
forecasts by 2-12% post briefing. Maintain BUY with a higher target price of RM3.50.
Principally involved in the manufacturing and
WHAT’S NEW sale of plastic molded products and
components.
• Further details from 3QFY21 results. Subsequent to the record-high revenue of RM1.3b in
2QFY21, ATA IMS (ATA) recorded another decent revenue of RM1.2b in 3QFY21. Note that STOCK DATA
both quarterly revenues, which superseded the RM1b benchmark, were all on the back of
GICS sector Materials
sustained orders from its main customer. With higher operational efficiency and a better
product mix, a record core net profit of RM54.0m was registered in 3QFY21, further helped Bloomberg ticker: AIB MK
by higher forex gains (realised) of RM10m. Shares issued (m): 1,202.9
Market cap (RMm): 3,789.0
• Aggressive loadings from main customer; alpha growth from trade diversion-related
orders to diversify concentration. We expect ATA to register a 2-year revenue CAGR of Market cap (US$m): 933.6
15% from its main customer in FY22, with various products ranging from home appliances to 3-mth avg daily t'over (US$m): 2.8
personal care. Note that its main customer has also committed to a huge investment for the Price Performance (%)
next five years which aims to double its product portfolio offering beyond the home
52-week high/low RM3.15/RM0.670
appliances and personal care segments. Beyond that, ATA is also benefitting from its trade-
diversion related orders which see its US customer- the crafting machine maker loading the 1mth 3mth 6mth 1yr YTD
third model to the group. Recall that this customer had awarded two projects amounting to 45.8 28.0 96.9 110.0 32.4
RM1b (annualised revenue) to ATA as of 4Q20 (started production of the first model; with Major Shareholders %
second model to start end-Mar 21). Subsequent to that, ATA has guided for RM1.5b in Oregon Tech Sdn Bhd 33.8
annualised revenue by FY22 on higher ramp-up of the two models. Ultimately, this should
Fong Chiu Wan 26.1
lead to a more diversified customer mix of 70:30 between its main customer and other
Oversea-Chinese Banking Corp Ltd 10.4
customers.
• At the boiling point of expansion. To cater to the aggressive growth, ATA has earmarked FY21 NAV/Share (RM) 0.65
another new factory with a size of 350,000 sf for its US crafting machine customer, on top of FY21 Net Cash/Share (RM) 0.02
the existing 228,000 sf factory for assembly and moulding as well as a 150,000sf warehouse
in Pasir Gudang. In terms of capex, the group has earmarked RM50m-70m for this the PRICE CHART
expansion in FY22.
(lcy) ATA IMS B HD ATA IMS B HD/FBMKL C I INDEX (%)
3.50
• Minimal impact from the recent COVID-19 disruption. Recall that the group had in early- 210
Jan 21 voluntarily shut down its factory for eight days to break the outbreak chain. We 3.00
180
believe the disruption this round might not be as severe vis-à-vis the previous strict MCO 2.50
150
lockdown in Mar-Apr 20 which caught all manufacturers unprepared. Note that the group 2.00
120
had already filled its 1-week order shortfall as of 2 March. 1.50
90

KEY FINANCIALS 1.00 60

Year to 31 Mar (RMm) 2019 2020 2021F 2022F 2023F 0.50 30

30
Net turnover 2,909 3,352 4,046 5,531 6,059 Volume (m)
20
EBITDA 187 148 223 324 360 10
Operating profit 162 115 187 284 317 0

Net profit (rep./act.) 113 78 134 208 234 Mar 20 May 20 Jul 20 Sep 20 Nov 20 Jan 21 Mar 21

Net profit (adj.) 113 78 134 208 234

EPS (sen) 9.8 6.5 11.2 17.3 19.4 Source: Bloomberg
PE (x) 32.0 48.4 28.2 18.2 16.2 ANALYST(S)
P/B (x) 5.7 5.7 4.9 4.1 3.6
EV/EBITDA (x) 20.1 25.4 16.9 11.6 10.5 Desmond Chong
Dividend yield (%) 0.0 0.6 0.6 1.9 2.2 +603 2147 1980
Net margin (%) 3.9 2.3 3.3 3.8 3.9 desmondchong@uobkayhian.com
Net debt/(cash) to equity (%) 14.5 15.6 (2.5) (3.8) (13.4)
Interest cover (x) 20.3 17.8 19.9 28.1 31.6
ROE (%) 21.5 12.1 18.6 24.6 23.6
Consensus net profit - - 132 174 211
UOBKH/Consensus (x) - - 1.02 1.20 1.11
Source: ATA IMS, Bloomberg, UOB Kay Hian

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STOCK IMPACT KEY ASSUMPTIONS

Year to 31 Mar 2021F 2022F 2023F
• Still the preferred partner of its main customer. ATA’s main customer continues to load
Sales 4,046 5,531 6,059
up higher orders to the group as work-from-home (WFH) is driving demand for electrical
- Box-built 3,218 3,674 3,947
appliances. In terms of its product pipeline, a new cordless floorcare product was launched
- Filters 373 402 442
in Jul 20 and started contributing to group earnings from 3Q20. Meanwhile, the group has
- Others 455 1,455 1,670
also started production of a new floorcare product that was launched in 4Q20. Operationally,
GP 292 411 455
ATA is running 15 PCBA lines now (still at its private arm) to meet 95% of its internal
- Box-built 206 235 253
demand. The group has received ISO13485:2016 for non-implantable E&E for the medical
- Filters 52 56 69
industry. ATA remains committed to consolidating these services at the group level in 2021. - Denko 34 119 134
Meanwhile, the battery-pack segment is now operationally self-sufficient, and has been
PBT margin (%) 4.3 4.9 5.0
meeting 100% of its internal demand since Jun 20.
Tax rate (%) 23.5 23.5 23.5
• Gaining traction from trade diversion-related orders. Among the five new customers Source: UOB Kay Hian
related to the trade diversion, the US crafting machine maker has the most promising ASSUMES PCBA INJECTED INTO THE GROUP
prospects. It had awarded two new projects to ATA, and had recently revised the project
Assuming PCBA operation being injected into the group in
amount upwards from RM600m to RM1b (annualised revenue). The volume is 6x higher FY22, and 0.5ppt net margin enhancement (assuming no
than the first order awarded. The orders had been transferred from a China manufacturer in interest costs from acquisition expansion)
the light of the US-China trade dispute. The first project started to see contribution from Sep Incremental PE multiple (PE Market Cap enhancement
multiple paid for PCBA / % enhancement based on
20 while the second project will commence in early-21. For this, the group has also business injection minus current market cap
expanded its R&D team to enhance its OEM and ODM capabilities. Meanwhile, based on forward PE of ATAIMS)
our latest channel check, we understand that ATA is looking to increase its production to 1x RM29.3m / 1%
RM1.5b (annualised revenue) by FY22 due to the overwhelming response to its crafting 2x RM58.7m / 2%
machines.
3x RM88.0m / 3%
• Capacity expansion is on track. In terms of injection moulding capabilities, the group aims 4x RM117.4m / 4%
to have another 50 machines in early-21, which will all be located at its Pasir Gudang facility 5x RM146.7m / 5%
that houses the assembly and moulding lines (228,000 sf). In terms of warehousing, the Source: UOB Kay Hian
group is looking to add another premise with a built-up size of 150,000 sf. All in all, these two
new facilities will increase total production and warehouse space by 23%.
EARNINGS REVISION/RISK
• We increase our FY21/22 net profit estimates by 2%/12% to mainly account for a higher
order assumption from its main customer and its US customer, a crafting machine maker.
• Key risks include: a) single customer concentration risk, given its largest customer accounts
for >75% of FY19-21 total sales; and b) new production lines not coming
on-stream in time.
VALUATION/RECOMMENDATION
• Maintain BUY with a higher target price of RM3.50, still based on an unchanged 20.0x
FY22F PE, which is +1SD above the group’s 3-year mean forward PE.
SHARE PRICE CATALYST
• Securing meaningful contracts from existing or new customers.

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PROFIT & LOSS BALANCE SHEET

Year to 31 Mar (RMm) 2020 2021F 2022F 2023F Year to 31 Mar (RMm) 2020 2021F 2022F 2023F
Net turnover 3,352 4,046 5,531 6,059 Fixed assets 337 346 351 353
EBITDA 148 223 324 360 Other LT assets 85 85 85 85
Deprec. & amort. 33 36 40 43 Cash/ST investment 360 483 498 607
EBIT 115 187 284 317 Other current assets 1,125 1,346 1,824 1,994
Net interest income/(expense) (8) (11) (12) (11) Total assets 1,907 2,260 2,758 3,039
Pre-tax profit 107 176 273 306 ST debt 356 356 356 356
Tax (28) (41) (64) (72) Other current liabilities 755 998 1,361 1,489
Net profit 78 134 208 234 LT debt 108 108 108 108
Net profit (adj.) 78 134 208 234 Other LT liabilities 19 19 19 19
Shareholders' equity 669 779 915 1,067
Total liabilities & equity 1,907 2,260 2,758 3,039

CASH FLOW KEY METRICS

Year to 31 Mar (RMm) 2020 2021F 2022F 2023F Year to 31 Mar (%) 2020 2021F 2022F 2023F
Operating 173 206 144 247 Profitability
Pre-tax profit 107 176 273 306 EBITDA margin 4.4 5.5 5.9 5.9
Tax (29) (41) (64) (72) Pre-tax margin 3.2 4.3 4.9 5.0
Deprec. & amort. 33 36 40 43 Net margin 2.3 3.3 3.8 3.9
Working capital changes 44 24 (115) (41) ROA 4.4 6.5 8.3 8.1
Other operating cashflows 18 11 12 11 ROE 12.1 18.6 24.6 23.6
Investing (33) (40) (40) (40)
Capex (growth) (40) (45) (45) (45) Growth
Investments 0 0 0 0 Turnover 15.3 20.7 36.7 9.6
Proceeds from sale of assets n.a. n.a. n.a. n.a. EBITDA (20.7) 50.5 44.9 11.2
Others 7 5 5 5 Pre-tax profit (30.0) 64.6 55.1 12.1
Financing (54) (40) (90) (98) Net profit (30.6) 71.6 55.1 12.1
Dividend payments (40) (24) (73) (82) Net profit (adj.) (30.6) 71.6 55.1 12.1
Issue of shares 0 0 0 0 EPS (33.8) 71.6 55.1 12.1
Proceeds from borrowings 8 0 0 0
Loan repayment n.a. n.a. n.a. n.a. Leverage
Others/interest paid (23) (16) (17) (16) Debt to total capital 40.9 37.3 33.6 30.3
Net cash inflow (outflow) 87 126 15 109 Debt to equity 69.3 59.5 50.7 43.5
Beginning cash & cash equivalent 271 360 483 498 Net debt/(cash) to equity 15.6 (2.5) (3.8) (13.4)
Changes due to forex impact 2 (2) 0 0 Interest cover (x) 17.8 19.9 28.1 31.6
Ending cash & cash equivalent 360 483 498 607

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