NTPM’s FY15 earnings beat expectations, reaching 109% of our estimates. Maintain NEUTRAL with a higher MYR0.75 TP (from MYR0.67, 9% upside) after rolling over our base year to 2016. The better performance can be attributed to the healthier margins achieved in 2HFY15. We however trimmed our FY16-17 EPS forecasts as we believe the outlook should remain challenging for the company.

Better than expected. NTPM’s FY15 core earnings of MYR42.6m were above our expectations but it was still 20.9% lower YoY, mainly due to cost pressure in 1HFY15 (Apr). Revenue for both NTPM’s paper and personal care products segments improved marginally by 1% and 1.5% YoY respectively. This was achieved on the back of better sales of tissue products (paper) and adult diapers (personal care).

Margin improved. 4QFY15 PBT grew 33% YoY to MYR18.4m, as PBT margin expanded 340bps YoY to 13.6% as both of its core segments recorded better margins YoY. NTPM’s paper products unit’s PBT margin expanded to 15.4% from 10.4% while its personal care segment saw margins increasing to 9.6% from 5.8%. Management attributed the better performance to several of its ongoing cost-savings projects that improved operational efficiency and contained costs so far.

Forecasts and risks. Although management has embarked on strategic cost management initiatives, we believe that the operating environment should remain challenging for NTPM due to intensifying competition, volatile currency and careful consumer spending. Thus, we further trimmed our FY16/FY17 earnings forecasts by 7.7%/13.2% respectively. We also introduced our FY18 estimates. Volatile raw material prices and weaker demand remain as key risks.

Maintain NEUTRAL with a higher TP. We adjusted our TP higher to MYR0.75 (from MYR0.67) as we roll over our base year to 2016 (previously 2015) and apply an unchanged target P/E of 15.5x, which is close to its 3-year historical trading band. We continue to believe that challenges will continue to persist for NTPM amid stiff competition. As such, we maintained our NEUTRAL recommendation on the stock.

Financial Exhibits

SWOT Analysis

Company Profile

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

Recommendation Chart

Source: RHB Research - 22 Jun 2015