KUALA LUMPUR: NTPM Holdings Bhd will likely return to positive earnings in FY24 from higher volume sales of tissue paper products, normalisation of gross margins and stabilising raw material prices.
CGS-CIMB Research said NTPM will likely deliver FY24–26 earnings per share (EPS) compounded annual growth rate (CAGR) of 63 per cent, fueled by a 9 per cent CAGR in its tissue paper product volume sales and normalisation in gross margins, which is from 43.6 per cent in FY23 to 51.7 per cent in FY26, as raw material costs stabilise.
"Based on our observations, NTPM's tissue paper products, namely PREMIER and Royal Gold, have a keen following among its more affluent clientele, with these two brands helping to ensure NTPM'sNTPM's 45–50 per cent market share in the consumer tissue market industry over the last 20 years despite the entry of two foreign players and the aggressive pricing strategy of its main competitor, Kimberly Clark.
"With its strong brand name and customer loyalty and consistent expansion into the export market and volume, NTPM has managed to maintain a 12-year tissue paper product sales CAGR of 5 per cent over FY12-FY23," the research firm said in a note.
CGS-CIMB Research also said that while utilisation of its tissue paper products capacity hit a low of 50 per cent in FY23, NTPM said utilisation has since risen to 55 per cent as of August this year, driven by growth in demand for its tissue paper products in both local and export markets.
Touching on the pulp price decline and stabilisation to NTPM's drive margin, CGS-CIMB Research thinks the 5.9 percentage point year-on-year (YoY) drop in NTPM's gross margin to 43.6 per cent in FY4/23 was due to an uptick in raw material costs with pulp prices contributing 49 per cent of the cost of sales.
To note, pulp prices rose by 62 per cent between FY21 and FY23, which led to a 10 percentage point decline in margins over the same period.
"As pulp prices have corrected 32 per cent year-to-date (YTD), we expect pulp prices to stabilise, resulting in a margin recovery in FY24.
"This, together with higher utilisation of its tissue paper products capacity, should take gross margins back to 47.5 per cent in FY24, in our view," CGS-CIMB Research noted.
CGS-CIMB Research upgraded NTPM to ''Add'' from ''Hold'' with a higher target price of RM0.75 based on a Gordon growth model (GGM) to capture its medium-term profitability and growth trajectory better.
"Should pulp prices rise to US$700 per tonne, we estimate this to lead to an FY26 return-on-equity (ROE) of 7 per cent, which would take our target valuation to RM0.26 a share.
"Downside risks include an increase in raw material prices, freight costs or a weaker ringgit, increase in market competition intensity and lower growth in capacity utilisation rates," the firm said.
