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Sunday, January 12, 2014

Oh Tissue Paper (NTPM Holdings Bhd Jan 2014)

NTPM Holdings Berhad (NTHB) is engaged in investment holding and provision of management services. NTHB and its subsidiaries are principally engaged in trading in paper, cotton, diapers and sanitary products; manufacturing and trading of paper products, such as toilet rolls, tissues and serviette; manufacturing and trading of personal care products, such as sanitary products and baby diapers; carrying out integrated logistics services, warehousing and trading of fast moving consumer goods, and carrying out information technology related businesses. It operates in two segments: manufacturing, which is engaged in manufacturing of paper products such as toilet rolls, tissues, serviette and personal care products such as sanitary products and baby diapers, and trading, which is engaged in trading of paper, cotton, diapers and sanitary products. Its subsidiaries include Nibong Tebal Enterprise Sendirian Berhad, Nibong Tebal Paper Mill Sdn. Bhd. and Nibong Tebal Personal Care Sdn. Bhd. Brand names under them are Premier (facial tissue), Cutie (toilet paper), Royal Gold (premium tissue paper), Intimate (sanitary napkins) and Diapex (baby diapers).


Price: RM0.81

Discount Price/Fair Price: RM0.47/RM0.60  
based on average PE range of 12.5 and 15 respectively

Fundamentals: Long Term Outperform (5-year period)
Technical: Short Term Bearish (3-month period)
Risk Level: Medium-High

**Outperform: Stock expected to do better than market return; has upside or at discount price. Buy call.
**Market perform: Stock expected to be on neutral or trading sideways, can be + - 3% to 5%. Hold call.
**Underperform: Stock expected to do worse than market return; has downside or too expensive to purchase vs both discount price and fair price. Hold call if long term outlook is solid. Only if fundamentals change I would put a sell call.

Fundamental Analysis
Revenue (turnover) and Earnings per share (EPS): 7.5% from the past 5 years which is in line with the revenue growth of 7.62%. Even in the midst of a weaken global economy, demand for personal care products is robust and recession proof as evident from increasing turnover growth; no dips whatsoever. Neutral due to the single digit growth. NTPM has to expand quicker to other countries as the market is saturated in Malaysia.

Dividends per share (DPS): No doubt NTPM has been generous on their dividend payouts having consistency of between 30% to 70% ratio to the EPS. Good yields from between 3.8% to 5.8% for the last 10 years. Note of caution, though it has a strong free cashflow of roughly rm27mil to rm32mil, it is barely just enough to cover the dividend payouts and this seems to be the SOP for the company over the years judging from the balance sheet and cash flow statements.

Debt-to-equity ratio (DE): Hovering in the 0.30s level, this is on the neutral side. What is more worrisome is the liquid asset-to-share ratio of only 0.02-0.03. There's very little cash/bank balances/deposit ready for use. On the good side, NTPM have not need any of it because #1 it managed to weather the financial crisis even at those levels #2 dividend payout has been consistently good leaving me to believe that they don't require much and prefer to reward stockholders.

Return of capital employed (ROCE): 20.93% (2011), 15.84% (2012) and 15.83% (2013). Good based on my take that it should not be less than 10%. It's an indication that the management is making use of the assets of the company in generating return for its shareholders.

*Price earnings ratio range (PER): EPS is stable for NTPM for me to use this. The industry average PE for paper products/stationary & printing segment is 11.19. NTPM is trading now at PE 18.41 while it's rolling 4Q PE is 16.65. The differential value of 1.76 indicates that it is overvalued currently. Also if you look at the stock price chart, back in 2009 when the PE high range of 15 is similar to what is happening now leading to my conclusion that the NTPM stock is very expensive nowBecause there is no listed competitor for me to compare the PE against the only assumption I am making is that the PE should not be able to go any higher >19 to justify the risk for profit. Stomach my assumption if you can.

*PER is only useful if EPS has NOT been volatile. This is because an abnormally low EPS would result in an amazingly high PE ratio and make the share look terribly expensive for that particular year. Also if the EPS of the stock is negative, PER cannot be computed as it is meaningless.

As a conservative analyst I will put 10 to 15 as the estimated PE range values for 2014 together with the forecasted EPS (4.7sen) and DPS (1.5 sen). As such my discount price @ RM0.47 and a fair price/hold price @ RM0.60 for 2014.

NTPM holds the market leadership position in Malaysia for tissue papers with more than 50% of the market share. 40% market share for toilet rolls. 20% market share for sanitary napkins & baby diapers (even though NTPM has only recently ventured into this market) and these are made possible because of cheaper prices vs competitor and aggressive marketing. NTPM's major competitor is Kimberly Clark (Kleenex and Scott paper products). Though NTPM's core market is still Malaysia, its 31% of the production line is dedicated for the export market: Singapore, Southern Oceanic and South Africa. Also the tissue manufacturing facility in Vietnam will commence 2H'2014 after construction began back in 2012. Management has commented (from the 2013 annual report) that they don't expect their investments in Vietnam to show fruit/produce profit at least until 2017. NTPM's long term plan is to tap the Indochina market and that remains to be seen.

NTPM is managed by the founder Lee See Jin, 74 who also holds 42.63% stake in the company and has been in the business for more than 30 years. His son Lee Chong Choon, 48 holds 11.90% stake and is known to be the process engineering & technical manufacturing guy behind the group. Overall this is solid family owned business. Sadly NTPM is very expensive to purchase now...the counter was in my Watchlist since 2012 but I did not have the time to research it and opportunity flew by. I am not going to make the same mistake again.

****For more information get my worksheet from dropbox (just look at the NTPM tab, I am in the process of updating the rest): Aboi_Hybrid_PEGGY_method

Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.

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