NTPM’s  share  price  has  rallied  strongly  and  outperformed  the  FBM KLCI index by some 93.6%  y-o-y. As we adjust  our earnings to factor in the additional cost from  the  power tariff hike,  we also  revise down  our FV to MYR0.82 from MYR0.87. Since the stock has appreciated  sharply and  breached  our  FV,  we  downgrade  our  call  to  TAKE  PROFIT  and suggest that investors accumulate at a lower level.

• Sharp  rise.  Our  Top  Pick  NTPM’s  share  price  has  risen  to  MYR0.85 from  MYR0.46,  as  of  yesterday’s  closing.  This  indicates  a  whopping capital gain of 84.8% and total y-o-y return of 106.2%, outperforming the FBM  KLCI index by  93.6%.  The stock’s P/E, which has  surged  to ~18x currently vs  ~12x  a year ago,  is  similar  to  that of  its peers, eg Kimberly Clark (KMB US, NR)’s 18.5x.
• Factoring in impact from power tariff hike. Utilities costs usually make up ~8% of the cost of goods sold (COGS). We expect  costs to increase by MYR300k-400k per month due to the recent power tariff hike effective from 1 Jan 2014. As NTPM’s management is not planning to pass on the extra  cost  to  end-consumers,  we  are  trimming  our  FY14-15  earnings slightly by 3-6% to factor in the impact. The group hopes to capture more market share by maintaining  its products’  selling prices. To date, NTPM is still the leader in the tissue paper market with a >50% share.
• Vietnam expansion on track. Its new plant in Vietnam is on schedule to be completed by March 2014, with machinery expected to be installed by June 2014. The plant, which is set to commence operation by Sept 2014, will produce 30 tonnes of tissue a day. This will boost  the group’s total production capacity to 345 tonnes/day from 315 tonnes/day.
• Downgrade  to  TAKE  PROFIT.  After  revising  our  numbers,  our  FV  is adjusted  lower  to  MYR0.82  from  MYR0.87,  pegged  to  a  15.5x  P/E  of FY15 EPS. The target P/E is at a 15% discount to the 18.3x weighted average  P/E  of  its  regional  peers.  We  downgrade  the  stock  to  TAKE PROFIT,  due  to  the  recent  share  price  rally,  and  advise  investors  to accumulate  at  a  lower  level  in  the  future.  NTPM  is  currently  trading above +2SD from its historical mean.

Financial Exhibits

SWOT Analysis

Company Profile
NTPM is principally involved in the manufacture of tissue and personal care products.

Recommendation Chart

Source: RHB