30 JEWELS 2013 Edition
•Malaysia’s largest tissue paper manufacturer
•A defensive business as its products are basic necessities
•Decent ROE and dividend yield
NTPM, incorporated in 1979, has blossomed into Malaysia’s biggest tissue paper manufacturer, caterting to some 60% of the nation’s tissue paper needs via well-known brands such as Premier, Cutie, Royal Gold, and ConV. It also exports to more than 27 countries, with Singapore as its largest export market, accounting for ~20% of total revenue. NTPM currently has an annual production capacity of 100,000 tonnes, with utilisation at ~70%.
Defensive business model. NTPM manufactures tissue paper and personal care products that are deemed necessities and thus recession-proof. Demand for its products is inelastic. While consumers may cut down on non-discretionary items when necessary, they are not able to dispense with necessities like tissue paper. Although some may opt for cheaper products, the Group is in a good position to withstand any product switching because it has different products at varied pricing targeting different market segments.
Venturing further into personal care. NTPM has a strong market presence, commanding ~50% of Malaysia’s tissue paper market via renowned brands such as Premier, Cutie, Royal Gold and ConV. Meanwhile, its personal care division – consisting of products like baby diapers, napkins and facial cotton under the Diapex, Intimate and Premier brands – is slowly gaining traction. Since venturing into the diaper business in 2009, the Group has managed to grab about 10% market share. It is also involved in the recycling business, producing compressed boards from its paper waste and plastic products from plastic waste/tetra packs. Going forward, NTPM intends to sharpen its focus in the growing personal care market segment. All in, we expect earnings to improve on higher revenue from its personal care division, with the Group targeting a 20% to 30% topline contribution in the medium-term.
Foray into Vietnam. NTPM’s recent foray into the Vietnam Singapore Industrial Park is part of its long-term plan to target the Indochina market while taking advantage of Vietnam’s cheaper costs and abundant labour to expand its production capacity. The Group will invest USD19.1m on a 25-acre plant, funding it via internally generated funds and borrowings. This should increase its gearing by around 2%.
NTPM’s Vietnam operation will be rolled out in two phases: i) the manufacturing of toilet paper and facial tissue from semi-finished paper rolls from 2014 onwards, and ii) the production of semi-finished paper rolls, toilet paper and facial tissue from paper pulp and recycled paper pulp from 2015. There might be potential upside to our FV once the plant comes on stream. We have not factored in the contribution from this new plant as it will only be completed mid-next year, and thus contributions from it would be hard to quantify just yet.
Company Report Card
Latest results. NTPM’s FY13 revenue and earnings expanded by 6.8% and 9.6% y-o-y respectively to MYR480.6m and MYR49.1m. Sales were boosted by a 37.9% y-o-y jump in revenue growth from its personal care segment, especially due to higher domestic baby diaper sales, which mitigated a 1.1% y-o-y dip in turnover from its paper products division.
Balance sheet / Cashflow. The net gearing is still at a relatively low level of 27.1% as at end-FY13.
ROE. NTPM’s ROE has been trending lower, from > 20% to mid-double digits over the past two years due to persistently high raw material prices previously. Moving forward, we expect ROE to improve to 17%, in view of the Group’s steady earnings momentum.
Dividend. NTPM does not have a formal dividend policy, but has been paying out > 50% of its earnings since FY09, except in FY12 due to the weaker profitability that year. We believe management is likely to maintain payout at this level, which offers >5% dividend yield.
Management. The Group’s managing director and founder, Mr Lee See Jin, has more than 26 years of experience in the paper industry. His son, Mr Lee Chong Choon, joined NTPM’s board of directors in 1999 to help steer the Company
We expect NTPM’s earnings to be on track to meet our FY14 forecast, given its leading domestic market share, regional footprint and expansion into the personal care segment. Maintain BUY, with a valuation of RM0.69, based on 13x CY14 EPS.