Maintain BUY with higher TP of MYR1.03 from MYR0.77, 30% upside and c.4% FY22F (Apr) yield. NTPM is transitioning to an earnings upcycle, underpinned by the lower raw material prices, narrowing Vietnam losses, and progressive contribution from the newly-added capacity. In addition, moderation in capex moving forward will free up more cash for the company to deleverage and dish out higher dividends. Valuation is undemanding with the stock trading at an unwarranted 45% discount from Bursa Malaysia Consumer Product Index (KLCSU) FY21F P/E of 24x.
Poised for an earnings upcycle. We foresee a forthcoming earnings upcycle for NTPM after the earnings downtrend in FY18-20 that were dragged down by the Vietnam losses and a sharp surge in pulp prices. Essentially, margin expansion is sustainable as pulp requirement is stocked until mid-2021 at a low price level. Besides, it will also be supported by the favourable product mix and surge in demand for wet wipes in personal care segment. On top of that, the business rationalisation plan whereby export business is reallocated to Vietnam plant, has lifted the production scale and hence narrowed the losses. The resultant spare capacity in Malaysia plants has been repurposed to produce recycled grade products. Meanwhile, the prospect of filling up newly expanded capacity (+45% in 2019) is gaining positive traction with more orders expected to be secured.
On a cleaner slate. The heavy capex cycle is over for NTPM after a total of MYR250m of capex invested in FY18-20, management expects to incur maintenance capex of MYR15-20m pa in FY21 and FY22. This will free up more cash for the company to degear and declare a higher dividend. We forecast net gearing to moderate to 0.65x in FY22 from 0.81x as of 1QFY21, whereas our DPS forecasts in FY21-FY23 imply c.3-4% yield.
Expecting further earnings recovery. NTPM is scheduled to release its 2QFY21 results on 18 Dec. We expect the strong earnings recovery momentum seen in 1QFY21 to sustain. Its 2QFY21 net profit is estimated to be MYR12m-14m (vs 1QFY21: MYR14.6m). This will imply a sharp YoY turnaround from the 2QFY20 headline losses of MYR1.4m. We made no changes to FY21 forecast but raised FY22-23 earnings forecasts by 12- 13% to pencil in management’s guidance on margins.
Our DCF-derived TP rises to MYR1.03 correspondingly after the earnings revision and a tweak in risk assumptions to better reflect the positive prospect. TP implies 17x P/E FY22F, at +1.5 SD over the stock’s 5-year mean, justified by a forecasted 3-year earnings CAGR of 98%.
Restructured to be shariah-compliant again NTPM was deleted from the latest shariah-compliant securities list after breaching the stipulated debt/asset ratio. We understand that the debts have been restructured to meet the requirement. That said, the company will have to wait for the review in Nov 2021 to return to the list as the review will be based on the figures in its annual report which is normally released in August.
FX exposure is hedged USD movement against MYR will not impact NTPM’s earnings significantly as export sales (40% of total sales) are naturally hedged by the purchase of imported raw material.
Risks to our recommendation include sharp rise in input costs and laterthan-expected turnaround in Vietnam operation
base on Q1 & Q2 result, cum eps=2.53 i think no problem to achieve eps of 5.0 for 2021. Assuming pe of 20 (historic), fair value = 20 x 0.05 = RM1.0 fair value
well run company, but with freight costs and multi year high, the cost of doing business is costly considering tissue is a cheap commodity product full of air
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....
MonkeySeeMonekyDo
23 posts
Posted by MonkeySeeMonekyDo > 2020-12-15 11:15 | Report Abuse
This one gonna fly