NTPM Holdings Bhd founder Lee See Jin has a grand vision to expand to Indochina. Starting with a US$19.7 million tissue-making facility in Vietnam, he intends to set up three manufacturing plants in the region.

Malaysia’s biggest paper products manufacturer aims to set up a second manufacturing plant in northern Vietnam to cater to Laos and southern China, apart from the local market.  The first plant in southern Vietnam near Ho Chi Minh City, to be commissioned in the third quarter, will cater to Cambodia as well.

“Indochina is such a large market, with rising income. The demand for tissue products there is still low and it will only grow in tandem with rising income. We want to be there early in the game before the market gets saturated,” says Lee, who is NTPM group managing director.

A third plant is planned for Myanmar to serve the market there, as well as to export to central and northern Thailand.

Via this strategy, NTPM will be able to cater to the whole Indochina market over the next three to five years, says Lee. The plan will be carried out in phases based on market demand and the success of the first venture in Vietnam, he adds.

In Vietnam, NTPM acquired 25 acres of land near Ho Chi Minh City for its plant, which will have two paper-making machines and an initial production capacity of 10,000 tonnes per year. That is about one-eighth of Vietnam’s total consumption of tissue products per year, a level that can easily be achieved, says Lee.

“For example, why do we plan to have two plants in Vietnam alone? This is because the country has such a long coastline, spanning more than 1,000km from Hanoi in the north to Ho Chi Minh City in the south,” he explains.

“If we were to have only one facility to serve the entire nation, we would lose out in terms of transport costs and the ability to serve our customers well.”  

For the 75-year old entrepreneur, serving customers well is an important value he holds firmly to. One of the reasons NTPM became a leading manufacturer of paper products in Malaysia is because of its ability to serve its customers wherever they are, he says.

A fleet of 130 trucks deliver the group’s products to customers all the way to southern Thailand in the north and Singapore in the south. Timely product delivery and the ability to price its products cheaper while maintaining industry leading margins is the recipe for its success over the last three decades, says Lee.

The higher profit margin was due to prudent management, says Lee. For example, as much as 80% of the group’s raw materials is sourced from waste paper, which is cheaper than pulp.

Waste paper only costs between RM450 and RM850 per tonne in Malaysia, he notes,  substantially lower than pulp, priced between US$620 and US$750 per tonne.

It also uses biomass, such as wood waste, to fire up its mills and produces pellets from waste-paper fibre. Clearly, NTPM has turned its waste into a viable money-making venture to diversify its earnings streams.

As a result, the group has managed to keep its debt level low. Net debt to equity stood at 27.1% as at FY2014 ended April 30 and is expected to fall to 19.4% by the end of this financial year, according to RHB Research Institute.

Meanwhile, NTPM will ensure that its Malaysian operation is not affected by its expansion into Indochina and will continue to upgrade its machinery in Nibong Tebal to increase efficiency and productivity, Lee says.

The company allocates about RM50 million a year for plant and machinery maintenance and upgrading, he adds.

Nevertheless, NTPM’s profit margin is expected to be hit this year by the higher electricity tariff. According to RHB Research Institute’s Ngo Siew Teng, the hike is likely to cost NTPM between RM300,000 and RM400,000 more a month.

“As NTPM’s management is not planning to pass on the extra cost to end-consumers, we are trimming our FY2014 to FY2015 earnings by 3% to 6% to factor in the impact. The group hopes to capture more market share by maintaining the selling price of its products,” Ngo says in a Jan 16 report.

In terms of market share, NTPM has more than 50% in tissue paper products, 10% in baby diapers and 30% in sanitary towels. Besides its well-known Premier and Royal Gold tissue products, NTPM’s baby diapers and sanitary towels are marketed under the Diapex and Intimate brands respectively.

While acknowledging that the sector has low barriers to entry, Lee says NTPM’s experience and track record gained over the last three decades gives it an advantage over the newcomers.

In the last 12 months, NTPM’s shares have rallied 95.2% and closed at 87 sen last Thursday, giving the group a market capitalisation of close to RM1 billion. RHB’s Ngo advises investors to sell for profit now  and accumulate the stock at a lower price in the future.

This story first appeared in The Edge Malaysia Weekly Edition, on January 20 - January 26, 2014.