NTPM’s disappointing 1QFY17 leads to less enthusiastic outlook
KUCHING: NTPM Holdings Bhd's ( NTPM) disappointing first quarter of financial year 2017 ( 1QFY17) has led to analysts having a less than enthusiastic view on the group's outlook.
In a filing on Bursa Malaysia, NTPM revealed that the group's revenue for the period ended July 31, 2016 was RM151.4 million compared with RM143.4 million for the period ended July 31, 2015, an increase of 5.6 per cent.
As for the group's profit before taxation for the period ended July 31, 2016, NTPM noted that it was RM14 million, a decrease of 21.3 per cent over RM17.8 million registered in the previous financial period ended July 31, 2015.
According to RHB Research Institute Sdn Bhd ( RHB Research), NTPM's 1QFY17 earnings were below expectations, at 15 per cent and 13 per cent of the research house's and consensus estimates respectively.
RHB Research noted that while revenue growth is sustained, net profit contracted from poorer margins for the quarter due to costs associated with the ramping up of NTPM's Vietnam operations, seasonal swing in competition at the group's personal care segment and higher labour costs.
Meanwhile, NTPM's lower net profit of RM9.4 million only met 13 per cent of the research arm of Public Investment Bank Bhd's ( PublicInvest Research) FY17F net profit forecast and was attributed to higher losses incurred in the post commencement of Vietnam's initial tissue operations and thus margin deterioration was recorded owing to higher energy and labour costs.
“While Vietnam's operations have hampered the group's performance this quarter, we do expect its contributions to be more visible in the medium term and to breakeven by FY18,” PublicInvest Research said.
On the outlook for the group, PublicInvest Research noted that NTPM continues to be challenged by a weaker broad market, hence affecting the spending ability of consumers.
The research arm further noted that aside from external factors, the group is also faced with other issues for FY17 such as full impact of higher electricity and natural gas tariffs effective January 1, 2016 by about 4.6 per cent and 17.2 per cent respectively.
Other issues include increasing cost from the rise in minimum wage for employees in Peninsular Malaysia by 10 per cent to RM1,000 per month and in East Malaysia by 15 per cent to RM920 per month commencing July 1, 2016, foreign currency fluctuations, with high volatility posing a challenge to managing manufacturing costs and Malaysia's consumer sentiment is expected to remain subdued from inflationary pressures affecting buying power.
Meanwhile, RHB Research was unenthused on NTPM's FY17 ( April) outlook with cost overruns at Vietnam, amidst exponential sales growth.
“Its utilisation rate is currently at circa 20 per cent, but costs continue to outstrip revenue,” the research house said, adding that NTPM expects this unit to break even in the second half of FY18 ( 2HFY18).
RHB Research was also less than enthusiastic on the outlook due to the company anticipating competition at NTPM's personal care segment to subside, with competitively priced stock- keeping units and more attractive packaging - which coincidentally improves its product mix, in addition to the dim outlook on average selling price hikes going forward, which translates to absorbing higher operating expenditure costs in the interim.
RHB Research trimmed its FY17F- 19F earnings by 10 per cent due to the research house's lower margins assumption arising from the higher opex and slower- than- expected ramp-up of NTPM's Vietnam facility.
“Downside risks to our forecasts include a sustained ramp- up in delays at NTPM's Vietnam operations and higher opex,” it said.
Post its earnings revision, RHB Research remained ‘ neutral' on the stock while its discounted cash flow- based target price was adjusted to RM0.81 per share from RM0.88 per share previously.