This article first appeared in The Edge Financial Daily on September 26, 2017

NTPM Holdings Bhd
(Sept 25, 78.5 sen)
Reiterate neutral with a target price of 71 sen: NTPM Holdings Bhd’s net earnings for the first quarter of financial year 2018 (1QFY18) were broadly in line at RM12.1 million (up 29.2% year-on-year [y-o-y], up 35.4% quarter-on-quarter [q-o-q]), which accounted for 21% of our full-year estimates. 1QFY18 revenue was RM176.2 million, up 16.3% y-o-y. The higher revenue was driven by sales of both tissue and personal care products, meeting 25% of our FY18 revenue forecasts. Operating pre-tax and net margins each improved by one percentage point y-o-y. Overall, we foresee a steady recovery in earnings in FY18 as we expect NTPM to keep focusing on driving sales while improving margins. We keep our earnings estimates and maintain our “neutral” call with a TP of 71 sen, based on 14 times multiple to FY18 earnings per share of 5.1 sen. The group declared a first interim single-tier dividend of 0.8 sen per share.

Paper products’ revenue jumped 17.7% y-o-y to RM124 million for 1QFY18. In tandem with sales improvement, 1QFY18 profit before tax (PBT) increased 31.2% y-o-y to RM14.2 million. PBT margin for the segment improved to 11.4% for 1QFY18, from 10.3% in the same period last year. Going forward, NTPM is focusing on increasing its tissue-paper production in meeting demand in local and regional markets, through the addition of two tissue-paper machines at its Ho Chi Minh plant, and one tissue-paper machine at its Penang plant. That said, we are looking at an increase of 40,000 tonnes per year from current 10,000 tonne per year and additional 20,000 tonnes per year from 100,000 tonne per year at the Vietnam and Penang plants respectively, which translate into about 50% added capacity to current production level. Given no hiccups in the expansion plan and continuous demand of its products, it should support progressive increase in sales in the longer term.

Personal care products segment saw increased sales for the quarter to RM52.1 million (up 13.3% y-o-y, up 2.4% q-o-q), while PBT improved by 15.3% y-o-y to RM3.7 million, supported by a stronger PBT margin of 7.1%, up by 12 basis points from 6.9% in 1QFY17. Despite the challenging retail landscape amid cautious consumer spending in Malaysia, NTPM will remain committed to generating higher sales of baby diapers while working on reducing overall production costs for this segment. — PublicInvest Research, Sept 25