NTPM Holdings Bhd
(Sept 26, 51.5 sen)
Downgrade to sell at 53 sen with revised fair value of 46 sen (from 53 sen): NTPM's 1QFY12 revenue and net profit came in at RM107 million (13.2% year-on-year) and RM9.2 million (-25.6% y-o-y), below our full-year forecast of RM49.6 million. The stronger revenue was mainly driven by the 9.7% sales growth in its tissue products (79.7% of total sales) and 29% revenue growth in the personal segment which contributed 20.3% of the sales pie. Baby diapers categorised under the personal care segment grew by 69.1% y-o-y to RM10.5 million due to their affordable prices.
1QFY12 Ebit margin fell 5.8 percentage points y-o-y to 12.2% due to: (i) the gas and electricity price hikes of 7%-8% since June 2010; (ii) higher pure (+32.4% y-o-y) and recycled pulp prices; and (iii) higher indirect raw material prices such as chemical and packaging. Also, NTPM is now currently using 100% pure pulp for its facial tissue products instead of blending with recycled pulp which is cheaper than pure pulp.
While the management guided that 2Q margin could be better due to the higher sales volume during the recent Hari Raya festivities, we believe margins will remain under pressure in the near term due to higher utility cost and recycled pulp price although indirect raw material and pure pulp prices have stabilised. Furthermore, the ringgit is expected to weaken against the US dollar in 2012.
Having said that, we expect pulp prices to retrace if global economic condition worsens and this could bode well for NTPM. We understand that NTPM has no intention to pass on the cost increase to consumers and will take necessary measures such as the launch of new products to cope with the higher operating cost environment.
Given the weaker-than-expected results, we cut our FY12/FY13 earnings forecasts by 13.3% and 12% to RM43 million and RM48.5 million respectively, incorporating higher utility and labour costs and recycled pulp prices. Our fair value is reduced accordingly to 46 sen. This gives 10% more downside versus its last closing price of 53 sen, and we downgrade the stock to 'sell'. ' OSK Research, Sept 26
This article appeared in The Edge Financial Daily, September 27, 2011.
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