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Company Update, 16 January 2014

NTPM (NTPM MK)


Consumer Non-cyclical - Household & Personal Products Market Cap: USD290m

Take Profit (from Buy)


Target Price: Price:
Macro

MYR0.82 MYR0.85

Taking a Break After Strong Rally

Risks Growth Value

NTPM (NTPM MK)


Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS)

0.90
0.85

189
179

0.80
0.75

169
159

0 0 . 2 0 0 NTPMs share price has rallied strongly and outperformed the FBM . 0 KLCI index by some 93.6% y-o-y. As we adjust our earnings to factor in 0 the additional cost from the power tariff hike, we also revise down our 0 FV to MYR0.82 from MYR0.87. Since the stock has appreciated sharply and breached our FV, we downgrade our call to TAKE PROFIT and suggest that investors accumulate at a lower level.

1 . 1 0 . 2

0.70
0.65

149
139

0.60 0.55 0.50 0.45


0.40 30

129 119 109 99


89

Sharp rise. Our Top Pick NTPMs share price has risen to MYR0.85 from MYR0.46, as of yesterdays closing. This indicates a whopping capital gain of 84.8% and total y-o-y return of 106.2%, outperforming the FBM KLCI index by 93.6%. The stocks P/E, which has surged to ~18x currently vs ~12x a year ago, is similar to that of its peers, eg Kimberly Clark (KMB US, NR)s 18.5x. Factoring in impact from power tariff hike. Utilities costs usually make up ~8% of the cost of goods sold (COGS). We expect costs to increase by MYR300k-400k per month due to the recent power tariff hike effective from 1 Jan 2014. As NTPMs management is not planning to pass on the extra cost to end-consumers, we are trimming our FY14-15 earnings slightly by 3-6% to factor in the impact. The group hopes to capture more market share by maintaining its products selling prices. To date, NTPM is still the leader in the tissue paper market with a >50% share. Vietnam expansion on track. Its new plant in Vietnam is on schedule to be completed by March 2014, with machinery expected to be installed by June 2014. The plant, which is set to commence operation by Sept 2014, will produce 30 tonnes of tissue a day. This will boost the groups total production capacity to 345 tonnes/day from 315 tonnes/day. Downgrade to TAKE PROFIT. After revising our numbers, our FV is adjusted lower to MYR0.82 from MYR0.87, pegged to a 15.5x P/E of FY15 EPS. The target P/E is at a 15% discount to the 18.3x weighted average P/E of its regional peers. We downgrade the stock to TAKE PROFIT, due to the recent share price rally, and advise investors to accumulate at a lower level in the future. NTPM is currently trading above +2SD from its historical mean.
Apr-11 420 52.1 52.1 (12.2) 0.05 0.03 18.3 3.84 20.5 3.4 11.2 21.8 20.1 Apr-12 450 44.8 44.8 (14.0) 0.04 0.01 21.3 3.37 21.5 1.7 12.1 16.8 26.8 Apr-13 481 49.1 49.1 9.7 0.04 0.03 19.4 3.08 12.7 3.4 10.9 16.6 27.1 Apr-14F 533 53.4 53.4 8.8 0.05 0.03 17.9 2.83 15.1 3.4 9.6 16.5 19.4 0.0 Apr-15F 590 59.2 59.2 10.9 0.05 0.03 16.1 2.62 12.0 3.4 8.7 16.9 19.0 0.0

25
20

15 10
Vol m

May-13

Jan-13

Jul-13

Nov-13

Sep-13

Mar-13

Source: Bloomberg

0.56m/0.17m -3.5 -3.8 0.45 - 0.87 30

Avg Turnover (MYR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (MYR) Free float (%) Shareholders (%) Lee See Jin Teoh Boon Beng Lee Chong Choon Shariah compliant

29.6 18.0 11.9

Forecasts and Valuations Total turnover (MYRm) Reported net profit (MYRm) Recurring net profit (MYRm) Recurring net profit growth (%) Recurring EPS (MYR) DPS (MYR)

Ngo Siew Teng +603 9207 7660


ngo.siew.teng@rhbgroup.com

Recurring P/E (x) P/B (x) P/CF (x) Dividend Yield (%) EV/EBITDA (x) Return on average equity (%) Net debt to equity (%) Our vs consensus EPS (%)
Source: Company data, RHB estimates

See important disclosures at the end of this report

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NTPM (NTPM MK)


16 January 2014 Figure 1: NTPMs P/E band

Source: Bloomberg

Figure 2: Assumptions
Total capacity (per annum) Utilisation rate
Source: RHB estimates

FY14 115k tonnes 65%

FY15 121.4k tonnes 62%

See important disclosures at the end of this report

NTPM (NTPM MK)


16 January 2014

Financial Exhibits
Profit & Loss (MYRm) Total turnover Cost of sales Gross profit Gen & admin expenses Selling expenses Other operating costs Operating profit Operating EBITDA Depreciation of fixed assets Amortisation of intangible assets Operating EBIT Interest income Interest expense Pre-tax profit Taxation Profit after tax & minorities Reported net profit Recurring net profit
Source: Company data, RHB estimates

Apr-11 420 (283) 137 (2) (21) (45) 69 90 (21) (0) 69 0 (2) 67 (15) 52 52 52

Apr-12 450 (315) 134 (3) (23) (46) 63 85 (22) (0) 63 (3) 60 (15) 45 45 45

Apr-13 481 (329) 151 (4) (26) (50) 72 95 (23) 72 (4) 67 (18) 49 49 49

Apr-14F 533 (363) 171 (5) (29) (60) 76 107 (30) 76 (5) 71 (18) 53 53 53

Apr-15F 590 (403) 187 (5) (32) (65) 85 118 (33) 85 (6) 79 (20) 59 59 59

Cash flow (MYRm) Operating profit Depreciation & amortisation Change in working capital Other operating cash flow Operating cash flow Interest received Interest paid Tax paid Cash flow from operations Capex Other investing cash flow Cash flow from investing activities Dividends paid Increase in debt Other financing cash flow Cash flow from financing activities Cash at beginning of period Total cash generated Implied cash at end of period
Source: Company data, RHB estimates

Apr-11 69 21 (24) 66 (0) (19) 47 (39) 0 (38) (33) 40 (0) 8 12 16 27

Apr-12 63 22 (24) 62 (0) (17) 44 (37) (4) (41) (33) 27 (0) (5) 27 (2) 25

Apr-13 72 23 (0) (11) 84 (8) 75 (50) (15) (65) (33) 15 11 (7) 25 3 28

Apr-14F 76 30 (33) 74 (10) 63 (50) 21 (29) (32) (29) 10 (51) 31 (16) 15

Apr-15F 85 33 (21) (6) 91 (12) 79 (50) 1 (49) (32) 13 (13) (32) 21 (1) 20

See important disclosures at the end of this report

NTPM (NTPM MK)


16 January 2014

Financial Exhibits
Balance Sheet (MYRm) Total cash and equivalents Inventories Accounts receivable Other current assets Total current assets Tangible fixed assets Intangible assets Total other assets Total non-current assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Total long-term debt Other liabilities Total non-current liabilities Total liabilities Share capital Retained earnings reserve Other reserves Shareholders' equity Total equity Total liabilities & equity
Source: Company data, RHB estimates

Apr-11 27 87 78 0 192 208 1 1 209 400 68 54 1 123 9 19 28 152 112 136 (0) 249 249 400

Apr-12 25 93 75 19 212 247 5 0 252 464 66 58 1 124 35 21 56 181 112 171 (0) 283 283 464

Apr-13 31 94 79 20 224 273 20 0 294 518 94 67 2 162 22 23 45 207 112 204 (6) 310 310 518

Apr-14F 21 127 80 228 292 (0) 292 520 67 73 2 141 20 21 41 182 112 225 337 337 520

Apr-15F 31 141 89 261 307 (0) 307 568 80 81 2 163 20 21 41 204 112 252 364 364 568

Key Ratios (MYR) Revenue growth (%) Operating profit growth (%) Net profit growth (%) EPS growth (%) Bv per share growth (%) Operating margin (%) Net profit margin (%) Return on average assets (%) Return on average equity (%) Net debt to equity (%) DPS Recurrent cash flow per share
Source: Company data, RHB estimates

Apr-11 9.7 (9.3) (12.2) (12.2) 8.9 16.5 12.4 14.1 21.8 20.1 0.03 0.04

Apr-12 7.0 (9.1) (14.0) (14.0) 13.9 14.0 10.0 10.4 16.8 26.8 0.01 0.04

Apr-13 6.9 13.5 9.7 9.7 9.6 14.9 10.2 10.0 16.6 27.1 0.03 0.07

Apr-14F 11.0 6.9 8.8 8.8 8.7 14.3 10.0 10.3 16.5 19.4 0.03 0.06

Apr-15F 10.7 11.1 10.9 10.9 7.9 14.4 10.0 10.9 16.9 19.0 0.03 0.07

See important disclosures at the end of this report

NTPM (NTPM MK)


16 January 2014

SWOT Analysis
Market leader in tissue paper products Owns good brand names, eg Premier, Royal Gold Entry of big competitors Volatile commodity prices

Venturing into Vietnam by setting up a new plant

Impact from the minimum wage policy Shortage of skilled labour

P/E (x) vs EPS growth


25.0 20.0 15.0 10.0 5.0 0.0 15% 8% 1% -6% -13% -20% 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

P/BV (x) vs ROAE


25% 22% 19% 17% 14% 11% 8% 6% 3% 0%

Jan-11

Jan-11

Jan-14

P/E (x) (lhs)

EPS growth (rhs)

P/B (x) (lhs)

Return on average equity (rhs)

Source: Company data, RHB estimates

Source: Company data, RHB estimates

Company Profile
NTPM is principally involved in the manufacture of tissue and personal care products.

See important disclosures at the end of this report

Jan-15

Jan-12

Jan-13

Jan-14

Jan-15

Jan-12

Jan-13

NTPM (NTPM MK)


16 January 2014

Recommendation Chart
Price Close
0.9 0.8 0.7 0.6 0.5
Recommendations & Target Price

NR

0.55

0.69

0.4 0.3
Buy 0.2 Jan-09 Neutral Sell Trading Buy Take Prof it Not Rated

Apr-10

Jul-11

Nov-12

Source: RHB estimates, Bloomberg


Date 2013-12-16 2013-10-04 2013-06-24 2013-06-11 2013-01-11 2012-08-08 2012-03-19 Recommendation Buy Buy Buy Buy Buy Buy Neutral Target Price Price 0.87 0.73 0.69 0.69 0.55 0.55 0.55 0.75 0.67 0.56 0.54 0.46 0.48 0.52

Source: RHB estimates, Bloomberg

See important disclosures at the end of this report

0.69

0.87 0.73

0.55

RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage

Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. It is intended for circulation to the clients of RHB and its related companies. Any recommendation contained in this report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This report is for the information of addressees only and is not to be taken in substitution for the exercise of judgment by addressees, who should obtain separate legal or financial advice to independently evaluate the particular investments and strategies. This report may further consist of, whether in whole or in part, summaries, research, compilations, extracts or analysis tha t has been prepared by RHBs strategic, joint venture and/or business partners. No representation or warranty (express or implied) is given as to the accuracy or completeness of such information and accordingly investors should make their own informed decisions before relying on the same. RHB, its affiliates and related companies, their respective directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto, and may from time to time add to, or dispose off, or may be materially interested in any such securities. Further, RHB, its affiliates and related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory or underwriting services for or relating to such company(ies), as well as solicit such investment, advisory or other services from any entity mentioned in this research report. RHB and its employees and/or agents do not accept any liability, be it directly, indirectly or consequential losses, loss of profits or damages that may arise from any reliance based on this report or further communication given in relation to this report, including where such losses, loss of profits or damages are alleged to have arisen due to the contents of such report or communication being perceived as defamatory in nature. The term RHB shall denote where applicable, the relevant entity distributing the report in the particular jurisdiction mentione d specifically herein below and shall refer to RHB Research Institute Sdn Bhd, its holding company, affiliates, subsidiaries and related companies.

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RHBSHK, RHBIB and/or other affiliates may beneficially own a total of 1% or more of any class of common equity securities of the subject company. RHBSHK, RHBIB and/or other affiliates may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from the subject company. Risk Disclosure Statements The prices of securities fluctuate, sometimes dramatically. The price of a security may move up or down, and may become valueless. It is as likely that losses will be incurred rather than profit made as a result of buying and selling securities. Past performance is not a guide to future performance. RHBSHK does not maintain a predetermined schedule for publication of research and will not necessarily update this report Indonesia This report is published and distributed in Indonesia by PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia), a subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Thailand This report is published and distributed in Thailand by RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL), a subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Other Jurisdictions In any other jurisdictions, this report is intended to be distributed to qualified, accredited and professional investors, in compliance with the law and regulations of the jurisdictions. DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy:Malaysia Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Research Office RHB OSK Securities Hong Kong Ltd. (formerly known DMG & Partners Neutral: Share may fall within months as 12 OSK Securities Securities Pte. Ltd. RHB price Research Institute Sdn the Bhdrange of +/- 10% over the next Take Profit: Target price One, has been attained. Look to accumulate at lower levels Hong Kong Ltd.) Level 11, Tower RHB Centre 10 Collyer Quay Sell: Share price may fall by more than 10% over the next 12 months Jalan Tun Razak 12th Floor #09-08 Ocean Financial Centre Lumpur World-Wide House Singapore 049315 Not Rated: Stock isKuala not within regular research coverage
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Downgrade| 0.82 This area is for use by EFA and will not be shown when printed Take Profit

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As of 15 January 2014, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for: a) DMG & Partners Research Pte. Ltd. (Reg. No. 200808705N)