Malaysia’s “PREMIER” tissue player
- We initiate coverage on NTPM with a Hold call and TP of RM0.42, based on our 0.9x CY23F P/BV 1.5 s.d. below its 5-year mean.
- We believe its key appeal as a strong household brand with diverse product offerings is muted by its dim earnings prospects amid high input costs.
- We estimate FY23F core EPS to decline 26.6% yoy, though this is likely priced in, supported by decent dividend yields of 3.9% in FY24-25F.
A market leader in the tissue manufacturing space in Malaysia
Nibong Tebal Paper Mill Holdings Bhd (NTPM) is one of Malaysia’s largest tissue paper
players, commanding more than 50% share in Malaysia’s tissue paper market by volume
as at FY22, in our estimates. NTPM manufactures and distributes both tissue paper
(70%/32% of FY4/22 revenue/EBIT) and personal care products (30%/68% of FY22
revenue/EBIT) through four manufacturing facilities in Malaysia (3) and Vietnam (1), with
a total tissue paper production capacity of 160k tonnes p.a. (FY22 utilisation rate: 53%).
Key strengths: strong household brand, diverse product offerings
We believe that NTPM’s key strengths lie in its i) dominant position as a market leader in the tissue market in Malaysia, cemented by its comprehensive product range that caters to different consumers’ budgets and needs, and ii) its longstanding position and branding efforts in the country (started its “Premier” brand in 1995) which has allowed NTPM to establish strong brand awareness for its products. This should allow for some stickiness for its products, in our view.
Challenging times due to inability to fully pass on rising input costs
We project core EPS decline of 26.6% yoy in FY23F due to higher input costs. Average pulp prices for 4MFY23F (May-Aug 2022) have risen c.20% vs. FY4/22 pulp prices of US$889/tonne, which could lead to further margin compression, as pulp and wastepaper costs accounted for c.58% of its FY22 total costs (see Fig 26). In addition, NTPM is likely to be hit by i) higher labour costs from higher minimum wage in Malaysia of RM1,500 per worker per month since May 2022, as well as ii) higher utilities (both gas and electricity) cost (7% of NTPM’s total costs in FY22). We penciled in EBITDA margin decline of 2.8%
pts to 10.0% in FY23F to factor in these cost increases. NTPM is likely to face limitations in fully passing on rising costs to consumers, as we opine that consumers are likely more price conscious in their purchase of its tissue paper vs. being brand conscious.
NTPM is a Hold call as challenging outlook likely priced in
Nevertheless, we believe that the share price has broadly priced in these negative prospects, as it has corrected by 45% since 1 Jan 2021. In tandem with this, we initiate coverage on NTPM with a Hold call and a target price of RM0.42. This is based on our 0.9x CY23F P/BV, which is 1.5 s.d. below its 5-year (FY17-22) historical mean. Upside/downside risks include: i) lower/higher pulp, wastepaper prices, and/or freight costs, ii) stronger/slower growth in export markets, and iii) a stronger/weaker RM/US$.