NTPM Holdings Berhad (NTPM) operates as one of Malaysia‟s tissue duopoly producer, a leading tissue and upcoming personal care products manufacturer. The Group is growing to become a personal care product giant, with its plans to expand regionally to Indochina within the next 3 to 5 years, starting from its first USD19.7m operations in Vietnam by March this year. We recommend NTPM with an Outperform view with TP of RM1.04 premised on 16x PE multiple valuation on FY15F earnings, supported by its i) 55% Malaysian tissue market share position, ii) emergence as an promising diaper and personal care manufacturer, iii) regional expansion of operations to Indochina, and iv) earnings boost from capacity and higher margins through product diversification including new paper products such as wet tissue and packaging wraps.

Growing regionally. NTPM has invested USD19.7m to commission an office and 2 warehouses housing 2 paper making machines on 10ha of land in Ho Chi Minh City. The plant will run at c.10,000MT/annum to start off, which equates to about 1/8th of Vietnam‟s total consumption on tissue products per year. To kickstart the operations, NTPM will be transferring some of its export sales to be produced in Vietnam, hence breakeven will be achieved despite Vietnam‟s poor domestic environment.

Resilient as a Personal Care player. NTPM is also growing its personal care offering in diapers (babies and adults), sanitary napkins and facial cotton and ear buds. A contract was also signed with a US-based company Seaman Paper Co. to supply wrapping tissue paper for products such as shoes for exclusive sports brands and fruits, and another with a Japanese company to supply diaper core wraps. The industry is gradually achieving a more balanced premium vs. mass product market hence NTPM‟s move to expand in premium personal care would yield higher margins.

Dividends. The Group‟s consistency in paying out dividends going forward is maintained at 2.9 sen per share translating to a healthy yield of 3.6% for FY15F.

Reaffirming Outperform. Our valuation of RM1.04 at 16x PE multiple based on FY15F earnings only considers a 8% growth in revenue with a 12% net profit margin sustained by higher margins expected from baby diapers and new products which we maintain is conservative as we have not taken into account the potential production of wrapping tissue for export. We expect earnings to be boosted further upon the materialising of their strategies.

Source: PublicInvest Research - 28 Jan 2014