• Maintain NEUTRAL, new TP of MYR0.41 from MYR0.48, 7% downside. NTPM’s FY22 (Apr) results met our expectations, as higher costs crimped margins and led to a substantial profit decline. Its earnings outlook remains challenging, given the cost pressures and limitations in passing on the increases in costs. As the stock is trading close to its 5-year mean, we believe most of the negatives may be in the price. Its dominant market share in Malaysia and robust consumption growth, however, should cap any further downside.

• NTPM’s FY22 core net profit of MYR28m (-57% YoY) met our expectation. Post results, we cut FY23-24F earnings by 33-35% after imputing higher cost assumptions in line with management’s guidance, and introduce our FY25 projections. Correspondingly, our DCF-derived TP falls to MYR0.41 (inclusive of a 2% ESG premium) which implies 16x FY23F P/E, or close to the stock’s 5-year mean. We believe the valuation can be justified by the group’s balanced risk-reward profile, taking into account the volatile commodity prices and its established market position.

• Results review. YoY, FY22 revenue inched up by 2% to MYR765m, thanks to an encouraging recovery in 2HFY22 following the broader economic reopening and the implementation of price increase to pass on the higher costs. However, that was not sufficient to offset the cost inflation arising mainly from the hike in raw material and freight costs – hence the 22% dip in EBITDA to MYR98m, with a margin that narrowed 4ppts. QoQ, 4QFY22 sales dropped 4% from the high base of 3QFY22, which was boosted by pre-price increase frontloading. Coupled with the continuous rise in production and operating costs, 4QFY22 core net profit declined 38% QoQ to MYR3.5m.

• More bumpy roads ahead. Notwithstanding the anticipation of a further consumption recovery going forward, we believe NTPM’s earnings outlook will remain challenging – considering the inflationary pressures coming from multiple fronts including raw materials, freight, utilities and wages. While we expect the group to raise prices further to pass on the cost increases, there will be a limit the markets can absorb. This is considering the potential demand pullback in the inflationary environment, as the demand for NTPM’s products may not be as inelastic as that for some other staple or necessity consumer goods. In addition, we believe NTPM will also need to balance the risk of a market share loss when deliberating on its pricing strategy.

• Upside/downside risks to our recommendation include a sharper-than- expected hike/dip in commodity prices, and drastic gains/losses in market share.

Source: RHB Research - 29 Jun 2022