NTPM HOLDINGS BERHAD VALUE EVALUATION

Tissues branding like PREMIER, COMPACT, ROYAL GOLD have long penetrated the market shelf space.  These products aim for their respective markets such as common household sanitary use, toilet use and quality use which has established a very strong branding image and awareness among the public for a long time. They are all originated from NTPM Holdings which is located in Penang. Recognizing the opportunity of turning low cost pulps into tissue products from China, the company is born with multiple product mixes including rolls, boxes and pocket tissues. As human civilization evolves, hygiene plays a big part when it comes to our daily routine. Therefore, use of tissue will remain resilient in the next decade regardless of the scientific breakthrough (I mean, people still need to wipe their sweat and clean their mouth even if there’s a robot helping them right?) Recently, competitors from Indonesia have started to join the competition. Even Malaysia’s giant retailer such as Giant and Tesco do not miss out the party. However, NTPM’s Compact branded rolls which are known for its thick and solid content is far enough to fend off these emerging competitors. As the company eventually diversify into personal care products, capital expenditure has been increasing. For year ending 2013 alone, capital expenditure is amounted at RM50 million which consumes 70% of the company’s net income.

Hygiene problem is highly encountered by undeveloped and developing countries which originate from water source and living cultures. Use of tissue is inevitability important for hygiene purpose. But, human awareness towards environmental issues are getting higher than before. Consumption of tissues is not environmentally friendly after all (Although Malaysian’s awareness towards this issue if far from preparation, the evolution will eventually come where people decrease the use of disposable sanitary products, but the timeline is still vague for me). Diversifying into personal care where there is a lot of existing competitors, I don’t see there’s too much of growth potential in the future unless the product mixes are somehow undertaking different innovations and strategies. But yet, I don’t see any at the moment.

As for operating cash flow, the company record an annual growth of 5% for the last ten years. It’s rather a low cash level compared its EPS. As for both of the ratios, it turn out to be satisfactory return for assets and equities. Prior to the company’s expansion plan, a lot of financing resources are needed. Drawdowns of loan has also scratched the figure averaged at RM30 million. Not to mention current liabilities ranging near RM100 million. Possessing cash amounted to RM30 million at the same time, the firm is kind of over leveraged to me. With price of RM0.85 that is almost the double of previous year’s figure, my calculated intrinsic value shows a number of RM0.588 which is far from the market price. It will be on a very long upward trend although it is somehow overvalued. The fact that the possession of its economics nature superiority is undeniable which still makes the company one of my top watch list.
Stock: NTPM Code: 5066