Our  recent  visit  to  NTPM  in  Penang,  Malaysia,  revealed  a  thriving  baby  diaper business  at  this  leading  local  tissue  paper  manufacturer,  thanks  to  the 'Dragon baby' boom. To widen its product range, the group plans to launch its new  Baby Diapers  Pull-up  pants  in  May  this  year.  Besides  its  aggressive  expansion  in  the personal care segment, NTPM recently invested in Vietnam to open up the Indochina markets. Maintain BUY, with RM0.55 FV.

A  road  trip  to  Nibong  Tebal.  We  recently  visited  NTPM  Holdings  in  Nibong  Tebal, Penang and were taken on a tour around its 60-acre production plant, which is well-hidden at  the  outskirts  of  the  town.  The  plant  currently  has  a  production  capacity  of  285 tonnes/day  at  an  average  utilisation  rate  of  70%.  Adjacent  to  it  is  another  50  acres  of empty land for future expansion.

Tissue paper  giant.  NTPM is Malaysia's leading tissue paper manufacturer commanding about  half  the  market,  with  strong presence  in  different  market  segments  through  its renowned brands such as Premier, Cutie, Royal Gold and ConV. Meanwhile, its personal care division, consisting of products such as baby diapers, napkins and facial cotton under the brand names of Diapex, Intimate and Premier, is slowly gaining traction. Apart from its traditional  tissue  paper  and  personal  care  divisions,  NTPM  is  involved  in  the  recycling business  producing  compressed  boards  from  its  own  paper  waste  as  well  as  plastic products from plastic waste/tetra packs.
 
Riding  on  the  baby  boom.  Since  venturing  into  the  diaper  business  in  2009,  the  group managed to gain about 10% market share. Its home brand baby diaper 'Diapex' delivered a  whopping  60%  revenue  growth  y-o-y in FY12, riding on the 'Dragon baby' boom as highlighted  in  our  previous  reports.  Drawing  on  this  success,  NTPM  is  launching  a  new product  -  Baby  Diapers  Pull-up  pants,  to  provide  customers  with  a  more  comprehensive range  of  baby  diapers.  With  a  new  machine  scheduled  to  arrive  later  this  month, management  aims  to  launch  this  new  high-end  pull-on  baby  diapers  in  May.  All  in,  we expect the group's earnings to improve on higher revenue contribution from the growing personal care segment, which it aims to expand from 20% to 30% in the medium term.

Cha o'  Vietnam!  The group's recent investment in Vietnam Singapore Industrial Park (VISP) is part of its long-term plan to target the Indochina markets, while taking advantage of  the  Vietnam's  cheaper  costs  and  the  abundance  of  labour  to  expand  its  production capacity. The company will invest a total of USD19.1m to set up a 25-acre plant in Vietnam, which  will  be  funded  via  internally  generated  funds  and  borrowings.  This  should  increase the group's 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.

Automation  to  partly  offset  wage  increase.  The  implementation  of  the  minimum  wage policy in Malaysia early this year will likely lead to rising labour costs. However, we believe this  will  be  partially  mitigated  by  the  group's  firm  top-line  numbers,  as  it  has  taken measures such as automation to improve operation efficiencies to lower costs.
 
Maintain  BUY.  Pulp  prices  are  expected  to  remain  stable  for  now  compared  to  two  years ago  when  commodity  prices  were  steep  and  volatile.  The  lower  costs  should  boost  the group's competitiveness. We expect NTPM's earnings  to  be  on  track  given  its  regional footprint and expansion in the personal care segment. Maintain BUY, with a FV of RM0.55, based on 13x FY13 EPS