Analysts see years of losses at Malaysia's ATA after major client Dyson cuts ties (updated)

ATA Creativity Global

26/11/2021 04:12

(Updates with analyst comments; Changes media slug, previously
ATA IMS-STOCKS/)
    By Liz Lee
    KUALA LUMPUR, Nov 26 (Reuters) - Analysts forecast years of
losses at Malaysia's ATA IMS Bhd  ATAI.KL  and challenges in
winning new customers following forced labour revelations that
led to major client Dyson Ltd cutting ties.
    Shares in ATA, which makes parts for Dyson's vacuum cleaners
and air purifiers, plunged a further 36.6% on Friday after Dyson
told Reuters it had terminated contracts with the Malaysian
supplier, effective June 1 next year following an audit of the
company's labour practices and allegations by a whistleblower.
 urn:newsml:reuters.com:*:nL1N2SG096. 
    The stock has lost more than half its value since the report
was published on Thursday.
    AmInvestment Bank said in a note the full impact of Dyson's
withdrawal is expected in the 2023 financial year, which would
"severely impact" ATA's earnings that year and beyond.
    Dyson contributes to around 80% of ATA's revenue.
    "We also foresee challenges ahead...to secure new orders
given its dented reputation and ongoing labour shortage crisis,
which is being viewed as an operational risk until a concrete
solution emerges," the note said.
    ATA may have enough time to replace some of its lost orders
with other existing customers, AmInvestment added.
    ATA did not respond to a Reuters request for comment. On
Thursday, the company said it had taken steps to engage Dyson
and advisers after it was notified of the summary of the labour
audit. The company also said its board was looking into the
validity of Dyson's termination notice.
    Another analyst covering the company also forecasts
two-three years of losses and said ATA may face "quite a lot of
obstacles" ramping up output for other customers given the
allegations.
    Rival electronics manufacturing services providers SKP
Resources  SKPR.KL  and VS Industry  VSID.KL  could benefit from
Dyson's withdrawal from ATA, the analyst said, declining to be
named due to sensitivities.
    Shares in SKP rose 10.6% while VS rose 8.5% after the news
was reported on Thursday.
    ATA may seek to pay down short-term debts during the notice
period, the analyst said.
    "The electronics manufacturing service business is
lucrative. There are lots of products that they can look into
especially with the rising Internet of Things trend. However,
ATA might face difficulty getting new customers," the analyst
said.

 (Reporting by Liz Lee; Editing by Muralikumar Anantharaman and
Lincoln Feast.)
 ((liz.lee@thomsonreuters.com; +603 23338008; Twitter:
@livinglizly;))