Improving conditions: A file photo of workers in NTPM’s plant in Nibong Tebal, Penang. The company has seen increased sales to commercial customers.
PETALING JAYA: NTPM Holdings Bhd
’s margins are expected to continue widening in upcoming quarters as raw material costs stabilise and stronger demand for its products lead to higher capacity utilisation.
CGS-CIMB Research said NTPM, a consumer goods and paper company, reported an operating margin of 9.7% in the first quarter of financial year 2024 (1Q24), rising by 1.4 percentage points quarter-on-quarter (q-o-q).
This marked the second quarter in a row where NTPM’s operating margins have improved. The company’s margins strengthened as the growth in revenue was higher than the increase in its operating costs.
“Although 1Q24 earnings before interest, tax, depreciation and amortisation was still lower than our full-year estimate of 10.7%, we believe NTPM will continue to see growth in the demand for its products in the local and export markets.
“This will drive higher utilisation of its capacity and better margins moving forward as raw material costs of both its segments stabilise from their highs at end-2022,” the research house said in a note.
CGS-CIMB Research pointed out that NTPM posted core net profit of RM600,000 in 1Q24, which was in line with its full-year core net profit forecast of RM25mil as operating margins are set to improve.
NTPM’s tissue paper products’ segment revenue grew 2.5% year-on-year (y-o-y) and 2.1% q-o-q, which NTPM attributed to higher local sales, especially to restaurants, malls, hotels and other commercial customers.
The higher sales coupled with lower raw material costs, which were partially offset by increased interest expenses and insurance premiums, narrowed pre-tax losses in the tissue paper products segment by 42.7% y-o-y to RM3.4mil.
Meanwhile, revenue from the personal care products segment also rose 4.3% y-o-y and 9.1% q-o-q due to an increase in average selling prices.
However, this segment saw higher raw material prices, mainly for fluff pulp, the prices of which doubled to US$1,400 per tonne in 4Q22.
This has since corrected by about 30%, which CGS-CIMB Research said should help the segment’s operating margins to recover.
The jump in raw material costs alongside higher interest expenses pushed down the personal care products segment’s pre-tax profit by 32.7% y-o-y and 12.1% q-o-q.
The research house also noted that the management of NTPM has reiterated its commitment to pare down its debt of about RM50mil.
It also plans to convert its US dollar-denominated debt into ringgit-denominated debt to enjoy an interest rate differential of about 2.5%, which should help reduce interest expenses.
Looking ahead, CGS-CIMB Research has maintained its “add” call on NTPM with an unchanged target price of 75 sen.
It also retained its earnings per share estimates.
“Should pulp prices rise to about US$700 per tonne, we estimate this will lead to a return on equity of 7% for financial year 2026, which will take our target valuation to 26 sen per share.
“We see improving earnings from stabilising pulp prices and higher utilisation rates for its tissue paper products as the key re-rating catalyst,” the research house added.
