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(Tapdance) Low Risk High Return (5) - NTPM (5066) NTPM HOLDINGS BHD

Beaten down for almost 4-years and in the midst of turning around, a seasoned hygienic related product producer armed with 50-years of solid operating track record is offering ~60 – 120% upside (on modest estimates).
NTPM is at an inflection point for a multi-year uptrend because –
  1. Pandemic drives higher hygienic products demand
  2. Vietnam new plant attains breakeven earlier than market anticipates because of the pandemic
  3. Record high quarterly revenue (uptrend on a streak) confirms healthy product demand
  4. Mgmt. guided lower COGS in coming quarters
  5. Raw material cost on down-cycle thus higher margin sustainable 

NTPM is a 50-years’ operating history company that produces and owns the famous ‘Premier’ tissue paper brand and other personal care products (such as feminine hygienic and baby diapers etc.).
NTPM is a seasoned and proven operator with a sturdy track record. It has expanded its manufacturing footprint in Vietnam in the recent years with products exported globally.  
Its market value declined ~60% upon hitting its peak (2016) because earnings fell from RM80m (PBT FY16) to RM22m (LTM PBT). The weaker results were due to temporary factors such as start-up expenses from its new Vietnam plant and higher raw material cost.
It invested ~RM200m for capacity expansion and Vietnam new plant in recent years.

Why the opportunity? NTPM is now at an inflection point for a multi-year uptrend whereby –
  • Pulp prices have fallen back to 2016 level (or off ~30% from late 2018 peak)
  • Pulp prices on down-cycle hence higher margin sustainable
  • Record high quarterly revenue suggest very healthy demand
  • Vietnam plant attains breakeven months earlier than market anticipates because of the pandemic

In the latest quarterly report (4QFY20), mgmt. revealed that coming quarters raw material cost likely to be lower as it adopts FIFO for raw material costs. Pulp price is on down-cycle in recent months therefore higher profit margin is sustainable.  
The pandemic has likely driven a surge in demand for paper-tissue related products. Export contributes ~30% revenue. 4QFYApr20 quarterly revenue hits record high tells a lot. In fact, revenue uptrend has never got disrupted on 12m basis! 
Demand will expedite ramp-up progress thus attaining breakeven point earlier than mgmt.’s target in 2H-21 (guided prior to pandemic).

Sizeable opportunity. NTPM generated ~RM75m PBT (or ~RM55m PAT) prior to Vietnam start-up and higher raw material cost drag. The PE band was ~15-17x or ~2.5x PB prior to FY17/18 (i.e. declining) years.
NTPM old plant alone should generate ~RM55m PAT as major cost component has fallen back to 2016 level. Simply assuming inflation would take care of both income and cost equally here; assumption is conservative.
On the conservative side, back-of-the-envelope calculation suggests NTPM worth ~RM1bn i.e. (RM55 x 15) + (1 x RM200m) or ~RM0.90 per share (1.12bn outstanding shares).
NTPM value could goes up to ~RM1.20 per share based on 2.5x multiple on capex – if market is willing to ‘look-beyond’ months of faster ramp-up.

Conservative estimates. No multiples expansion build-in out of its historical norm, which is despite the ultra-low interest rate environment at current market backdrop
Supported by the co.’s sturdy track record and the market interest for healthcare related exposure, odds are good for market is willing to prescribe some form of premium over my conservative estimate. 
Simply, NTPM has ~60 – 120% upside at RM0.90 – 1.20/share.   

  • Pandemic drives higher hygienic products’ demand
  • Record high quarterly revenue – uptrend on a streak
  • Vietnam new plant attains breakeven earlier than market anticipates
  • Management guided coming quarterly COGS cost lower
  • Pulp prices on down-cycle hence better margins sustainable

P/S: Although there’s always the chance, I am less incline to build in an estimate that accounts for “higher ASP on hot demand” scenario simply because it is less sustainable. Tissue papers aint gloves. But if market is willing to prescribe that kind of scenario? Be my guest. 


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