not vested
NTPM Holdings Bhd
Price: 50 sen
NTPM manufactures and retails consumer tissue and personal care products. Its portfolio of household brands includes Premier, Royal Gold, Cutie, Intimate and Diapex.
While recent profitability has been negatively affected by rising raw material costs of paper pulp, we expect profit margin to recover given that pulp prices have declined by more than 20% in 2019.
This low pulp price environment appears to be sustainable in 2020 as global pulp demand is not expected to catch up with the recent capacity addition by global pulp players.
Pulp costs account for a substantial 30% of its revenue and the company holds 5 to 6 of pulp inventories.
Aside from the recovery in profit margins, we expect revenue growth in 2020 to be driven by a tissue paper capacity expansion in its Vietnamese plant, which now accounts for close to 30% of total capacity.
The utilization rate of this Vietnamese plant, which targets the broader South East Asian market, is expected to escalate going forward and allowing some economies of scale benefits.
While liquidity for the stock is limited as a result of the lack of analyst coverage and institutional following, valuation has not priced in any potential recovery in earnings at the current price level.
Source: Fortress Investment