KUALA LUMPUR: RHB Research is retaining its Buy call on NTPM Holdings Bhd
, which makes household and personal care products, with a target price from its closing price of 58 sen.
It said on Tuesday NTPM’s move to increase its selling prices should help earnings recover in FY19, while longer-term prospects will be supported by inelastic demand on its products as well as capacity expansion plans in Malaysia and Vietnam. ‘
“FY18 results are below our estimates, due to lower-than-expected personal care item sales and our overly optimistic margin assumptions. Post-results, we cut FY19F-20F earnings by 13-14% to account for the weaker-than-expected results.
“However, we reiterate our positive stance on the stock, as we continue to like this leader of the local tissue paper market, backed by its established brands and sound fundamentals. The stock is currently trading at an undemanding 14 times FY19F P/E, well below its five-year mean of 16 times,” it said.
NTPM’s core net profit of RM35mil in the financial year ended April 2018 (-33% on-year) was below expectations, at just 88% of its full-year forecast.
The negative deviation could be attributed to the softer-than-expected sales in the personal care segment and RHB Research’s overly optimistic margin assumptions.
Year-on-year, FY18 revenue rose by a healthy 7% to RM691mil, thanks to the robust 8% sales growth in the paper product segment (70% of FY18 revenue).
Even then, sales charted by its personal care division only grew 2% on-year, due to intense competition. Meanwhile, core net profit dipped 35% on-quarter to RM35mil, mainly dragged down by high raw material costs.
The group has implemented price increases to pass on the majority of additional costs arising from high raw material prices.
“Meanwhile, management may review its pricing strategy to mitigate the tight competition in the personal care products market.
“We expect the impact to be reflected in its books from 1QFY19 onwards, and this would, in turn, drive an earnings recovery (+32% on-year) in FY19.
“Looking further, the inelastic demand for its products should continue to sustain the resilient topline growth.
“To capture demand, the group could expand the production capacity at both its Malaysia (to 110,000 tonnes, from 100,000 tonnes) and Vietnam (to 50,000 tonnes, from 10,000 tonnes) plants by end-2018. This would underpin its long-term earnings growth, in our view,” it said.
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