CGS-CIMB reiterates ‘Reduce’ call on ATA IMS

by NURUL SUHAIDI / graphic by TMR 

CGS-CIMB Securities Sdn Bhd reiterated a ‘Reduced’ call on ATA IMS Bhd with a higher target price of 36 sen as it awaits clearer signs of a turnaround after a third-party auditor found ATA IMS adheres to both local and international labour standards.

The electronic manufacturing services (EMS) company appointed an independent professional services company to conduct an independent assessment mainly relating to its governance and risk management of human rights and labour management practices against the indicators of forced labour.

“We view the result as a positive development to the group as it should alleviate some of the social risks present in its operations and give reassurance to ATA IMS’ existing or potential new customers,” the broker stated in a research note yesterday.

Notably, in November 2021, ATA IMS lost key customers mainly due to forced labour allegations.

“While we believe the company now has a greater chance of obtaining new customers and projects, we are still waiting for a clearer turnaround sign,” CGS-CIMB added.

The broker remains cautious, given the lack of details on the audit findings, the auditor and the timeline for sharing the details.

“The raised target price to 36 sen reflects a lower environmental, social and governance (ESG) risk. We reduced our ESG discount to 10% from 20% previously, mainly to reflect the alleviation of social risks present in the group.

“We also raised our P/NTA valuation to 0.7 times from 0.6 times previously to reflect its relatively stronger footing in its ability to secure new customers/projects,” CGS-CIMB noted.

It retained its ‘Reduce’ call on ATA IMS due to forecast the latter will suffer losses going into the financial year 2023 (FY23)-24F.

Nonetheless, CGS-CIMB stated should ATA IMS wins over new customers and a clearer sign of its cost-cutting measures start bearing fruit going into FY23F, it shall suggest more

bullish on ATA IMS’ earnings prospects. ATA IMS shares rose 9.5 sen or 21.8% to 53 sen on the increased volume of shares traded yesterday on the independent advisors’ findings.