NTPM Holdings Bhd
(March 13, 85.5 sen)
Maintain neutral with a lower target price (TP) of 81 sen: NTPM Holdings Bhd’s revenue for the third quarter ended Jan 31, 2017 (3QFY17) grew 5.8% year-on-year (y-o-y) to RM170.4 million, while its cumulative nine-month (9MFY17) revenue increased by 6.3% y-o-y to RM486 million, attributed to higher tissue product sales. 

3QFY17 net profit of RM15.5 million was 12.3% lower y-o-y, bringing 9MFY17 net profit to RM40.9 million, down 14.1% y-o-y, which met only 58% of our estimates. Prospects remain challenging for NTPM in the near term, as cost pressures from its Vietnam operations are expected to continue affecting margins, before the income stream becomes more significant in the medium term. 

We revise our earnings estimates lower by 16% to 20% for the financial year ending April 30, 2017 forecast (FY17F) to FY19F, accounting for higher labour and utilities costs in view of current challenges, though we keep a close eye on margin recovery signs. Our TP has been reduced to 81 sen from 88 sen previously, pegged at 14 times FY18F earnings per share of 5.8 sen. 

3QFY17 paper product revenue increased 5.8% y-o-y to RM119.3 million, with 9MFY17 revenue amounting to RM37 million, a 6.9% increase y-o-y. 3QFY17 profit before tax (PBT) declined 17.3% y-o-y to RM18.1 million, while 9MFY17 PBT was 16.3% lower y-o-y. The PBT margin for the segment deteriorated to 13.4% in 9MFY17 from 17.1% a year earlier. The weaker performance of this segment was attributed to higher losses incurred post-commencement of  its Vietnam operations, on higher energy and labour costs, as well as higher selling and distribution costs.

 3QFY17 personal care product revenue increased 9.2% y-o-y to RM51.1 million, while 9MFY17 revenue for the segment was RM149 million, up 5% y-o-y. 9MFY17 PBT was stronger by 17.7% y-o-y due to increased sales. The segmental PBT margin improved from 8% in 9MFY16 to 8.9% in 9MFY17.

The weak consumer sector outlook due to factors including inflationary pressures and higher cost of living is expected to continue to be a drag on NTPM, cutting into consumers’ pockets. On top of that, among key issues faced by NTPM in FY17 are the full impact of higher electricity and natural gas tariffs effective Jan 1, 2016 by about 4.6% and 21.9% respectively, increasing costs from the rise in minimum wage for employees in Peninsular Malaysia by 10% to RM1,000 per month and in East Malaysia by 15% to RM920 per month commencing July 1, 2016, and foreign currency fluctuations, with high volatility posing a challenge to managing manufacturing costs. We believe the group will keep on identifying cost-saving methods and ways to strengthen its customer base in order to improve overall operational efficiencies. — PublicInvest Research, March 13