KUALA LUMPUR (Feb 7): The rally in ATA IMS Bhd's share price, which more than doubled in the last two weeks, may be due to "optimism about ATA IMS securing a new major customer" that could boost the group's earnings prospects, according to CGS-CIMB Research.
The research house said this in a note on Monday (Feb 6) that analysed the potential reason for the 127% jump in ATA IMS' share price to close at 46.5 sen last Friday, from 20.5 sen on Jan 20. As for its peers in the electronic manufacturing services space, VS Industry Bhd was up just 13% in the same period, while SKP Resources Bhd rose 1%.
While CGS-CIMB noted that the rally had sparked speculation about a corporate exercise with the emergence of new shareholders, it said "there are still uncertainties surrounding this explanation given the lack of information".
Analyst Nagulan Ravi, who covers the stock, said the strong interest in the stock recently was driven mostly by retail buyers, who net bought ATA IMS shares worth RM3.8 million from Jan 3 to Feb 3, based on fund flow data from Bursa Malaysia.
The potential new customer could boost ATA IMS’s future earnings prospects, after the company reported a core net loss of RM23 million for the first six months ended Sept 30, 2022 (6MFY2023), he said.
Assuming that ATA IMS has secured a new multinational corporation customer for box-built assembly products, the company could post FY2024 core net profit accretion of RM31.5 million, and FY2025 core net profit accretion of RM105 million, under a blue-sky scenario that the roll-out of the first product model to the customer is in June 2023, with four new product models in February 2024, he said.
“In the bear-case scenario, assuming that the roll-out of the first model is delayed to October 2023 and the other three in September 2024, FY2024 and FY2025 [respectively], core net profit [accretion] could come to RM6 million [for FY2024] and RM21 million [for FY2025],” Nagulan said.
He said the target price for ATA IMS would have a 79% upside to 83 sen per share in the blue-sky scenario, but a 54% downside in the bear-case scenario to 21 sen on the assumption of no new customer wins for FY2024 to FY2025.
On the other hand, if ATA IMS liquidates all its assets and pays off all its liabilities, the group would be looking at equities available for new ventures of RM593 million.
Nagulan observed that ATA IMS sat on net cash of RM18.3 million as at end-September 2022, which represented net cash per share of two sen.
“Based on a loan financing of 50% to 70%, ATA IMS could leverage up to gain a war chest of RM1.2 billion to RM1.98 billion,” he said.
Nevertheless, Nagulan reiterated a “reduce” call on the stock, as ATA IMS' earnings prospects remain uncertain, while awaiting further developments.
“We will only turn more bullish once and if ATA IMS secures a major new customer, which should serve as a strong rerating catalyst,” he said.
At the time of writing on Tuesday, ATA IMS shares were trading 2.5 sen or 5.38% lower at 44 sen each, bringing the group a market capitalisation of RM530.24 million.