NTPM’s future earnings cut in anticipation of elevating raw material costs

KUCHING: NTPM Holdings Bhd’s ( NTPM) financial year 2018-2020 forecast ( FY18F-20F) earnings have been cut by analysts in ant icipat ion of elevating raw material costs.

According to the research arm of Public Investment Bank Bhd ( PublicInvest Research), while NTPM’s first half of financial year 2018 (1HFY18) revenue was in line with its expectations, the weak margin performance was attributed to higher raw material prices, namely pulp prices from instability of global demand and supply.

“We cut our earnings estimates by 24 per cent to 39 per cent for FY18F- 20F, in anticipation of elevating raw material costs,” PublicInvest Research said.

On the group’s paper products’ revenue, NTPM noted that for the period ended October 31, 2017, it was at RM239.4 million, up 9.94 per cent from RM217.8 million for the financial period ended October 31, 2016.

“The higher sales however did not translate into improved bottomline, as profit before tax ( PBT) for 2QFY18 declined by 60.3 per cent y- o-y, resulting in a drop in 1HFY18 PBT margin to 8.6 per cent, compared to 12.4 per cent PBT margin reported in the same period last year,” PublicInvest Research said.

This was primarily attributed to higher raw material and labour costs, which the research arm estimated to be circa 30 per cent and 10 per cent of total costs respectively.

PublicInvest Research noted that going forward, NTPM will continue to focus on increasing the group’s tissue paper production in meeting demand in local and regional markets, through the addition of two tissue paper machines in its Ho Chi Minh plant, and one tissue paper machine in its Penang plant.

The research arm is looking at an increase of 40,000 metric tonnes ( MT) per year from current 10,000MT per year capacity and additional 20,000MT per year from 100,000MT per year each in Vietnam and Penang plant respectively, translating to circa 50 per cent added capacity to current production level.

“Given no hiccups in the expansion plan and continuous demand for its products, it should support progressive increase in sales in the longer term,” the research arm added.