Our website is made possible by displaying non-intrusive online advertisements to our visitors.
Please consider supporting us by disabling or pausing your ad blocker.
$ATAIMS / 8176 (ATA IMS BERHAD)
I think we have to be rational at this point in time and I believe a closer look and knowledge is key here.
Firstly, according to report by AffinHwang dated October 8, ATAIMS’ UK customer has completed an independent audit review on ATAIMS in 3Q21, following the earlier allegations of labour exploitation which broke out back in May 2021. The scope of the audit covered matters relating to labour living conditions including working hours, wages, and health and safety.
In other words, ATAIMS has been cleared of any wrongdoing. Prior to this, the UK’s Sunday Mirror had also issued a public apology on its misrepresented article. This positive audit outcome should provide a proper closure and alleviate investors’ earlier concerns. It is also reassuring that the US Customs and Border Protection (CBP) has not affected any shipment deliveries either.
On their relationship with Dyson, it has been known by the EMS industry circles in 2017 when ATA IMS was known as Denko Industrial, that Datuk Seri James Fong had close ties with Dyson. From being one of the subcontractors to being the main one. Thus, the chances of Dyson retreating as a client could be as unlikely as ATA IMS' management is denying here. I dont think any prudent management would be caught lying blatantly on this.
Over 2021, ATAIMS has announced that they have gained 5 new customers (most likely as a result of the US-China trade war), namely, Sagemcom, Schneider Electric, Swiftlabs, Ecobee, and Cricut and is said to be expanding. - If you look into their latest QR, they actually made a net positive operating cash flow despite the profit loss, with RM50mil CAPEX, as well as slight increase in inventory and contract assets more than doubled QoQ. On the quantitative front, it seems management claims that they are ramping up for their new customers have some beef to it.
I think the most important point here is that going back to the classic Graham idea that the market is not here to be a conveyor of information but rather the daily market quotations is there for any intelligent investor to exploit. Mr. Market will always be manic-depressive, swinging from extreme optimism to extreme pessimism.
So IMO the crux of the problem lies in this: Considering a market cap of RM1.9Bil as of time of writing, and that before this quarter ATA IMS was a six-figure profit company. Does this company provide an opportunity to buy into a cheap price knowing:
1) Long-term prospects is favourable
2)Price crashed because of short-term issue
Thus, some key questions here:
1) what is the probability that the foreign labour shortage is going to be long-term, considering borders will eventually be opened?
2) what is the probability that Dyson will cease to be a major customer, considering founder/company's long-term relationship with them?
Assuming the company returns to its FY21 profit, the current forward PE is 12.67. Is this cheap for one of the largest EMS players in Southeast Asia? You decide.
Personally, I can potentially see this being like the American Express 'salad oil crisis' back in Buffett's earlier days.