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Tuesday, September 27, 2016

Brokers Report: NTPM Holdings Bhd - Dragged by new Vietnam operations

Remain neutral with unchanged target price (TP) of RM0.88

NTPM Holdings Bhd
NTPM’s 1QFY17 revenue came in at RM151.4m (+5.6% YoY, +4.7% QoQ), while net profit slipped to RM9.4m (-27.4% YoY, -6.6% QoQ). The higher revenue was driven by increase in sales of tissue products, meeting 21% of our revenue forecast for FY17F. The lower net profit which only met 13% of our FY17F net profit forecast awas attributed to higher losses incurred in the post commencement of Vietnam's initial tissue operations and thus margin deterioration was recorded owing to higher energy and labour costs. While Vietnam’s operations have hampered the Group’s performance this quarter, we do expect its contributions to be more visible in the medium term and to breakeven by FY18. We continue to maintain our Neutral view with a TP of RM0.88 pegged to a 14x PE multiple on FY17F EPS of 6.3sen.

Paper products segment saw improvements in revenue by 8.9% YoY to RM105.4m (+4.6% QoQ). PBT however declined 20.6% to RM10.8m mainly from higher losses incurred in the post commencement of Vietnam’s tissue operations. This has also translated to margin deterioration from higher energy and labour costs. We understand this to be the initial gestation period at start-up stages, and expect to see breakeven by FY18.

Personal care products. 1QFY17 revenue fell marginally by 1.3% to RM46.0m, while PBT dipped 23.4% to RM3.2m attributed to the increase in labour costs, depreciation and advertisement and promotional activities from the competitive nature of some personal care products.

Outlook. NTPM continues to be challenged by a weaker broad market, hence affecting the spending ability of consumers. Aside from external factors, the Group is also faced with the following issues for FY17 i) Full impact of higher electricity and natural gas tariffs effective 1 January 2016 by about 4.6% and 17.2% respectively, ii) increasing cost from the rise in minimum wage for employees in Peninsular Malaysia by 10% to RM1000/mth, and in East Malaysia by 15% to RM920/mth commencing 1 July 2016, iii) foreign currency fluctuations, with high volatility posing a challenge to managing manufacturing costs, and iv) Malaysia’s consumer sentiment is expected to remain subdued from inflationary pressures affecting buying power.

Remain Neutral. We continue to recommend NTPM with a unchanged TP of RM0.88 pegged to a 14x PE on FY17F EPS of 6.3sen. The Group has strategic plans and control measures to mitigate the impact of the above adverse challenges and is expected to enhance its performance going forward.

Source: PublicInvest Research - 26 September 2016

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