Brokers Report: NTPM - Some Signs Of Recovery

Maintain Neutral with unchanged target price (TP) of RM0.88

NTPM’s 2HFY17 revenue came in at RM315.6 m (+6.6% YoY), while net profit dipped to RM25.4m (-15.1% YoY). The higher revenue was driven by increase in sales of tissue products, meeting 44.1% of our revenue forecast for FY17F. The lower net profit which met 35.9% of our FY17F net profit forecast awas dragged by the continued losses incurred in the post commencement of Vietnam's initial tissue operations resulting in margin deterioration from higher energy and labour costs. Vietnam’s operations have affected the Group’s overall performance for the year, however this quarter’s higher sales revenue and margin improvement as a result of favourable product mix recorded boosted overall performance. We are expecting the easing of cost pressures from Vietnam’s operations as contributions become more visible in the medium term, and thus to breakeven by FY18. We are maintaining our Neutral view with a unchanged TP of RM0.88 pegged to a 14x PE multiple on FY17F EPS of 6.3sen. A higher first interim single dividend of 1.6sen for FY17 was declared, above our estimated 0.8sen hence FY17 payout should translate to >2.9% yied. We are however maintaining our previous dividend forecast of 1.6sen for full year FY18 onwards.

• 2QFY17 Paper products segment recorded improvements in revenue of RM112.4m (+7.9% YoY, +6.6% QoQ). PBT however declined 12.1% YoY to RM16.2m, but QoQ saw a jump in PBT of 49.9%. The losses incurred YoY is due to the post commencement of Vietnam’s tissue operations. This has also translated to some 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. QoQ however is showing signs of recovery that has offset the potential losses, from higher sales revenue and margin improvement as a result of favourable product mix.

• Personal care products. 2QFY17 revenue grew 7.0% YoY to RM51.8m, while PBT in the same trend rose 12.2% to RM5.5m owing to higher sales revenue and margin improvement as a result of favourable product mix recorded this quarter.

• Challenging outlook. NTPM remains challenged by the weaker broad market, hence pressuring the spending ability of consumers. Aside from external factors, the Group continues to face the following issues in 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.

• 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 - 05 December 2016