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.
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.
KEY HIGHTLIGHTS
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
