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KUALA LUMPUR (Nov 5): AmInvestment Bank Bhd has upgraded its rating of ATA IMS Bhd to "buy" with higher forecasts and a fair value (FV) of RM2.46 (from RM2.22 previously), pegged at calendar year 2021 (CY21) forecast price-earnings (PE) of 18 times.

ATA IMS is a fast-growing electronics manufacturing service (EMS) company.

“Our target PE multiple is in line with our EMS benchmark forward PE of 18 times, which represents a two times premium above its one-year sector historical forward PE of 16 times to reflect the sector’s brightened prospects,” the research house wrote in a note today.

Besides, it said the EMS sector benefits from companies seeking to diversify their supply chain away from China to Southeast Asia due to rising cost in China and amid US-China trade tensions.

Following this, the research house raised its forecasts for ATA IMS for the financial year ending March 31, 2021 (FY21) until FY23 by 7%-15% to account for higher volume and margin assumptions for its key customer and crafting machine customer, which will extend into FY22.

AmInvestment is forecasting the group’s core net profit to be RM137.9 million for FY21, RM173.5 million for FY22 and RM201.8 million for FY23.

“We came away feeling positive on the group’s strong order momentum going into 2HFY21 (the second half ending March 31, 2021) from its key customer and crafting machine customer, evidenced by higher moulding capacity and its capacity expansion into Pasir Gudang to cater for the growth ahead. We continue to like ATA IMS due to its positive prospects,” said AmInvestment, noting the company’s earnings conference call.

Nevertheless, the research house believes that the stock is fairly priced.

“ATA IMS’ positive prospects arise from being the purest proxy for its key customer’s growth prospects for being the largest contract manufacturer producing the broadest product range; its efforts towards being vertically integrated; and customer diversification opportunities ahead from the US-China trade war diversion, supported by its modular expansion strategy,” said the research house.

At the time of writing today, shares in ATA IMS had risen seven sen or 3.18% to RM2.27, bringing its market capitalisation to RM2.73 billion.

http://www.theedgemarkets.com/article/aminvestment-upgrades-ata-ims-buy-raises-fair-value-rm246