The Johor Bahru-based electronics manufacturing service (EMS) provider has since made a remarkable turnaround, with its share price surging 143.5% from a low of 19.5 sen on Jan 13 to a high of 47.5 sen on Feb 3. The price has since settled comfortably above 40 sen in recent days.
In a note yesterday, CGS-CIMB Research attributed the steep rise in the share price to optimism among retail buyers about the group securing a new major customer.
The research house noted the rally had sparked speculation about a corporate exercise with the emergence of new shareholders, but added there “are still uncertainties surrounding this explanation given the lack of information”.
Its analyst Nagulan Ravi said a new multinational corporation customer could boost the group’s earnings to RM31.5 million core net profit accretion in FY2024 from a core net loss of RM23 million for the first six months ended Sept 30, 2022.
ATA IMS announced its subsidiaries Jabco Filter System Sdn Bhd and Winsheng Plastic Industry Sdn Bhd received notices of termination dated Dec 12, 2022 from Dyson Manufacturing and Dyson Operations. Its share price tumbled 12% after its announcement on Dec 23.
The company claimed the contracts were terminated without cause and notice. Sales of products to Dyson constituted 100% of Jabco’s revenue, and approximately 82% of Winsheng’s revenue.
A troubled past
It should be noted that this was the second termination of a contract by Dyson, which is privately owned by British billionaire James Dyson.
Previously, ATA IMS’ subsidiary ATA Industrial Sdn Bhd announced on Nov 25, 2021 it had received a notice of termination of contract for a manufacturing agreement from Dyson Operations.
The reason for the termination was related to allegations of worker mistreatment and forced labour by the company. ATA IMS has denied any such instances of forced labour practices in their operations.
Amid these losses, the group also has an ongoing litigation against United Max Construction, which claimed RM4 million in compensation from ATA IMS for failing to return vacant possession by the end of the factory tenancy agreement in February 2021.
The most recent update from the board was in a Jan 18 filing with Bursa Malaysia, announcing the trial was postponed to April 4, 2023.
Looming uncertainty ahead
Whilst the loss of the Dyson contracts is a blow to the company’s revenue streams, the uptick in ATA IMS’ share price recently may be a sign things are changing for the better.
The group has announced plans to potentially downsize its activities, reduce excess capacity and terminate leased assets if needed following the loss of contracts with Dyson.
It has also identified a potential impairment of goodwill on consolidation arising from a RM76.4 million acquisition of the IMS group in 2018.
CGS-CIMB Research suggests that if the group liquidates all its assets and pays off its liabilities, it would have equities available for new ventures of RM593 million.
It has reiterated a “reduce” call on ATA IMS as its 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,” said its analyst Nagulan.
The group’s share price fell 1.5 sen to 45 sen today, giving it a market capitalisation of RM536.2 million.