Not out of the woods yet
? An independent audit conducted on ATA’s operations by a third-party auditor
concluded that ATA adheres to both local and international labour standards.
? We view this as a positive development as it should alleviate some of the
social risks present in its operations.
? Reiterate Reduce with a higher TP as we await clearer signs of a turnaround.
Independent auditor confirms ATA’s adherence to labour standards
On 11 Apr, ATA IMS (ATA) announced in a press release that the group had appointed
an independent professional services company (one of the Big 4) 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 Organization’s 11 indicators of
forced labour. The findings of the third-party independent assessment, which was carried
out over 9-25 Mar 2022, indicated that ATA adheres to both local and international labour
standards at its Malaysian facilities in Johor Bahru. ATA was made aware by the thirdparty assessor of three main areas of improvement: i) providing education to workers
about its Zero Cost Recruitment Fee Policy, ii) increasing awareness on confidentiality of
using grievance channels, and iii) providing education on Occupational Safety and Health
Administration (OSHA). ATA further stated that it remains committed to sharing details of
the independent assessment transparently and at the proper time with Bursa Malaysia,
the Ministry of Human Resources Malaysia, and the relevant local regulatory bodies.
Positive development but still awaiting clearer turnaround signs
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 Nov 2021,
owing mainly to the forced labour allegations. We believe the audit findings should
provide reassurance to ATA’s existing/potential new customers of its adherence to
international labour practices. While we now think ATA stands a relatively better chance
on winning potential new customers/projects, we are still concerned given the lack of
details on the audit findings, the auditor and timeline of sharing the details. We expect the
negative sentiment surrounding ATA to ease slightly but linger until ATA is able to
monetise its audit findings by securing new projects/customers.
Raise TP to reflect lower ESG risks but remain cautious
We raise our TP to RM0.36 as i) we reduce our ESG discount to 10% from 20%
previously, mainly to reflect the alleviation of social risks present in the group, and ii) we
raise our P/NTA valuation to 0.7x from 0.6x previously to reflect its relatively stronger
footing in its ability to secure new customers/projects. We keep our Reduce call on the
stock as we continue to forecast losses for ATA going into FY23-24F. We will turn more
bullish on its earnings prospects once we see i) new customer wins, and ii) clearer signs
of its cost-cutting measures bearing fruit going into FY23F.