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Maintain NEUTRAL, new TP of MYR0.48 from MYR0.53, 9% upside. NTPM’s 3QFY22 (Apr) results are below expectations as we anticipate a weaker 4QFY22 ahead. Essentially, we believe volatile commodity prices and the continuous rise in operating costs are likely to persist, and pose downside risks to its earnings. As such, we refrain from being more aggressive with our valuation, notwithstanding the forecasted earnings growth moving forward. As the stock is trading at slightly below its 5-year mean, we believe its risk-reward profile is balanced at present.
3QFY22 results are below estimates. The company’s core net profit of MYR26m (-42% YoY) met 74% of our previous forecast, but we expect a weaker 4QFY22 ahead – considering the shorter working month in February, and the higher costs. The negative deviation could be attributed to the bigger-than-expected rise in costs on all fronts, including that for raw materials, freight and transportation, as well as utilities and energy. Post- results, we cut FY22-24F earnings by 12-15%. Correspondingly, our DCF- derived TP drops to MYR0.48 (inclusive of a 2% ESG premium). The new TP implies 13x FY23F P/E, which is close to the stock’s 5-year mean.
Results review. 9MFY22 sales inched up marginally by 0.5% YoY to MYR564m, as demand for both tissue paper and personal care products recovered on the further relaxation of social distancing restrictions. However, 9MFY22 operating profit slumped 49% YoY to MYR42m following the material rise in the costs mentioned above. Meanwhile, NTPM’s Vietnam unit also suffered losses in 2QFY22 and 3QFY22, as the country implemented its first nationwide lockdown – which significantly dented the overall consumption. 3QFY22 revenue jumped 16% QoQ to MYR210m, thanks to the easing of restrictions. This led to a 68% QoQ surge in 3QFY22 net profit to MYR6m.
Bracing for more challenges ahead. NTPM is likely to record more subdued numbers in 4QFY22, in view of: i) The shorter working month in February in both Malaysia and Vietnam due to the Lunar New Year break; and ii) essentially, the increase in cost pressures on a broad basis. On top of that, the labour shortage issue and spike in new daily COVID-19 cases have also disrupted its operational productivity. To mitigate the impact of rising costs, management has raised costs, to pass on the additional costs – this takes effect next month. The company is looking forward to the reopening of international borders in the near term, and expects this to alleviate its labour shortage issues.
Upside risks to our recommendation include a sharp fall in raw material costs and market share gains. The opposite of such circumstances would present downside risks.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....