We remain optimistic on NTPM’s outlook in view of the defensive nature of its business, favorable raw material prices and the company’s recent expansion  into  Vietnam.  Given  the  better  margins  and  sales  arising from the recent price hike for  NTPM’s products, we revisit  our numbers and nudge  up the stock’s  FV to RM0.69  while rolling over our valuation to 13x CY14 EPS.

- Better years ahead. NTPM’s earnings have been moderating in the past two years due to:  i)  costlier  pulp and recycled paper,  as both are major raw materials for its products, and ii) cost pressures brought on by rising energy  and  wage  costs.  Raw  material  prices  are  expected  to  remain stable  for  now  compared  with  two  years  ago  when  commodity  prices were volatile. These should enable the group to improve margins.

- Baby boom  boost to  diaper sales.  NTPM’s  personal care segments, especially  baby  diapers,  will  drive  growth  moving  forward.  Sales  of Diapex,  its house  brand  for baby diapers, surged  60% y-o-y in FY12  as the company benefited from  the ‘Dragon baby’ boom  that year.  In  2H, the company will introduce a new product - baby pull-up pants – that will broaden its range of  baby care items.  The group aims to expand the revenue contribution from its personal care segment from 20% to 30% in the medium term.

- More  dividends  in  the  pipeline?  The  company’s  DPS  for  FY12  was low, at 1.45 sen vs 2.9 sen in FY11. It did not declare a final dividend last year due to  a  weaker performance.  As  FY13  was a  more benign period compared to FY12, we are optimistic that the group will be able to  pay a higher dividend to its shareholders this year.

- Maintain BUY. On 1 June, NTPM raised its product prices by 5%-10% in order to mitigate the impact of rising operating costs  after it implemented minimum  wages  earlier  this  year.  In  view  of  the  better  margins  and higher sales  owing to  the price increase, we adjust our FY13  and FY14 numbers by  4.3% and 14.2% respectively.  Maintain BUY,  with a higher FV of MYR0.69, based on 13x CY14 EPS.

Source: RHB