CGS-CIMB raises target price for ATA IMS after positive audit findings

KUALA LUMPUR: The latest audit findings should reassure ATA IMS Bhd’s (ATA) existing and potential new customers of its adherence to international labour practices, but negative sentiment around the electronics manufacturing services group is expected to linger until it manages to get new projects or customers, said CGS-CIMB.

The stockbroking firm is keeping its “reduce” call on the stock but has raised its target price (TP) to 36 sen from 29 sen previously after an independent auditor’s findings indicated that ATA adheres to both local and international labour standards at its Malaysian facilities in Johor Bahru.

“We view this as a positive development as this should alleviate some of the social risks previously present in its operations following the loss of its key customer in November 2021, owing mainly to the forced labour allegations,” it said in a note.

ATA now stands a relatively better chance on winning potential new customers or projects, CGS-CIMB said. Nonetheless, the brokerage expressed concern over “the lack of details on the audit findings, the auditor and timeline of sharing the details.”

On the raising of the TP, CGS-CIMB said this follows the reduction of its environmental, social, and corporate governance (ESG) discount to 10 per cent from 20 per cent previously, mainly to reflect the alleviation of social risks present in ATA.

The stockbroking firm, however, maintains its “reduce” call on the stock as it still forecasts losses for ATA going into the financial years ending March 31, 2023 and 2024.

“We will turn more bullish on its earnings prospects once we see new customer wins, and clearer signs of its costcutting measures bearing fruit going into financial year 2023,” it added.

On Monday, ATA announced that the third-party independent assessment of its operations, which began on March 9 this year and ended on March 25, has validated and confirmed that its activities are governed by human rights principles, laws, and industry best practices and standards to manage impacts in its areas of operation

ATA had appointed the auditor to conduct an independent assessment on its wholly-owned subsidiary, ATA Industrial (M) Sdn Bhd, mainly relating to its governance and risk management of human rights and labour management practices against the International Labour Organisation’s 11 indicators of forced labour.