Less favourable outlook for NTPM
NTPM Holdings Bhd
(Sept 8, 59.5 sen)
Maintain neutral at 59.5 sen with target price 52 sen: NTPM’s results were in line with our earnings estimates. The group reported 1QFY2011 revenue of RM94.5 million, which was flat year-on-year (y-o-y) and earnings of RM12.4 million (-11.7% y-o-y), representing 24.5% of our full-year forecast of RM50.5 million. While personal care product sales jumped 18.4% to RM16.8 million y-o-y, tissue products — which contribute 82% of total sales — contracted 3.2% to RM77.7 million, resulting in flat overall 1QFY2011 sales. The flat growth in sales was also attributed to the stronger ringgit against the US dollar given that some 30% of its revenue is transacted in US dollars. Quarter-on-quarter, its top line rose 1.2% while bottom line fell by 12.4%.
As expected, earnings before interest and tax (Ebit) margin was lower at 18% against 19.8% in 1QFY2010, impacted by higher pulp prices, which surged 25% y-o-y. While management believes that pulp prices will stabilise in the immediate term given that supply has caught up with demand, we see margins remaining thinner y-o-y due to the stronger ringgit against the greenback, which translates into lower revenue, given that the group does not intend to pass on the higher raw material cost to customers. Ebit margin hit a six-year high at 21% in 3QFY2010.
The group has diversified into the stationery business to supplement growth of organic tissue and personal care products sales. While this is still at a preliminary stage, the group has successfully produced waste paper, which is currently used internally, and compressed fibreboards as well as envelopes which have been commercialised, albeit at a small scale.
Given that the results are within our expectations, we maintain our FY2011 and FY2012 earnings forecasts at RM50.5 million and RM58.9 million respectively. Although the share price represents a 11.8% downside against our target price of 52 sen, we maintain our “neutral” recommendation as we believe that NTPM’s decent dividend yield of 5% will support its share price. — OSK Investment Research, Sept 8
This article appeared in The Edge Financial Daily, September 9, 2010.
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