1QFY16 core profits of MYR12.9m (+85 YoY, -2% QoQ) were in line, making up 26% of our and consensus estimates. Maintain NEUTRAL and MYR0.75 TP (4% upside), pegged to 15.5x 2016F P/E. Management expects: i) high inflation, ii) volatile currency, and iii) soft consumer sentiment post GST implementation to underpin tough operating conditions ahead.

In line. We deem NTPM’s 1QFY16 (Apr) net profit of MYR12.9m (+85% YoY, -2% QoQ) in line, making up 26% of both our and consensus’ fullyear estimates. Topline grew 8.4% YoY (+6.4% QoQ) to MYR143m, largely driven by the personal care product segment, more specifically, baby diapers. Separately, management expects tough operating conditions ahead, citing: i) high inflation, ii) a volatile currency, and iii) the implementation of the goods and services tax (GST).

EBIT margin dips on product mix. 1QFY16 EBIT margin compressed 130bps QoQ due to an inferior product mix and a forex loss of MYR600,000. However on a YoY comparison basis, margins expanded by 5.2% due to a cost overrun in 1QFY15. Recall that higher electricity and natural gas tariffs took effect in Jan 2014 and May 2014 respectively. Margins have since gradually recovered to pre-hike levels (see Figure 4), a testament to NTPM’s resiliency in finding necessary cost efficiencies and its pricing power ability towards customers.

Forecasts and risks. We make no changes to our earnings forecasts as 1QFY16 earnings were in line. The key risks are: i) volatile raw material prices, ii) intensifying competition – most likely with direct competitor Kimberly-Clark (KMB US, NR), and iii) down-trading by customers as a result of tighter purse strings amidst challenging consumer sentiment.

Maintain NEUTRAL and MYR0.75 TP. We reiterate our NEUTRAL call, with an unchanged TP of MYR0.75, pegged to 15.5x 2016F P/E, which is close to the stock’s 3-year historical trading band. We like NTPM for its established Premier brand and earnings visibility, but the stock is currently trading at 2016F P/E of 14.8x, which we deem fairly valued. This counter offers a dividend yield of 2-3% for FY16F-18F.