Thursday, October 25, 2012

Buying NTPM should not be that difficult

There are not many locally owned companies that have built strong positions in the consumer market. I can think of Mamee which is already delisted. Two others in the apparel market, Padini and Bonia. Another - NTPM which stands for Nibong Tebal Paper Mill. I don't think many Malaysians would know what this company does. It is not a printing company. Neither is it a paper company.

What does this little company do then? Some of the below brands look like a foreign brand to you? If you think so, I would think that NTPM has done a very good job building and strengthening its brand.

In fact, it is the leader in facial and toilet tissue in Malaysia with brands such as Premier, Royal Gold and Cutie. As for its Intimate (for sanitary napkin) and Diapex (for baby diapers) brands, they are lagging behind much bigger companies such as Kimberly-Clark (Kotex, Huggies) and P&G (of course Pampers and Whisper).

I would consider with the massive number of brands in the sanitary napkin and baby diapers, that space is pretty tight as well as competitive. One thing that amaze me is that the tissue space, there are only 2 major players in Malaysia - Kimberly-Clark (Kleenex) and NTPM. NTPM is in fact the leader in Malaysia with about 50% share. A tough fact to digest but it is a fact. Besides Kleenex, other competitors if you notice are mainly house brands - Tesco, Carrefour, Guardian etc.

The fact that the Premier and Cutie brands can fend off competition from Kleenex is amazing. Yes, it only happens in Malaysia and a lesser extent Singapore, but it is a strong show by this Malaysian company nevertheless. In fact, the strong push by NTPM in grabbing market share for its tissue products which consists of 80% of its total revenue only started about 10 years ago. Before that, NTPM;s market share was much lower and it was not the leader in the tissue market space. Now, it is.

Since we now know NTPM has done a good work in pushing its brand, what about its financials.

If you look at the above numbers, its revenue has a consistent growth while its operating profit is very much controlled by several factors - pulp and paper, labor and electricity costs. But so are the other companies that compete against NTPM. Hence, that will even out in the medium term and in the business such as what NTPM is in, it will definitely pass the additional costs to the consumers. What is more important to me is its competitiveness and growth. It has decent revenue growth with bigger percentage coming from the baby diapers and sanitary napkin market though.

At its current market capitalisation of RM500 million (share price RM0.45), NTPM is trading at around 11 - 12x PE. Its Balance Sheet is very decent. So are the cashflow. Is that attractive enough? Quite. To me considering that many other companies in the consumer space are already with 20x PEs or more and considering that the brand which NTPM carries are already quite established. The brand value that it carries should already be of some decent value especially when it carries a strong market share.

To me, NTPM will continue to do well as it has been managed at a very conservative manner- read its Annual Reports, and in most cases, the management are quite careful in their statements, surprisingly - while the following years after the carefully made statement, its results just turned out fine. An example of a careful company, look at the decision where the management decided not to pay final dividends for FY2012. It may not be positive for some but to me, it is the right decision in preparing for competition for the future. You do not want to pay dividends while overly gear the company of worse still for some companies, they do a cash call.

What about the growing debt? I believe that a large part of it is short term debt as well as the position that the company is trying to do in building its competitive strength in the future - newer machineries and bigger capacities.

Who is buying and who is selling

If you want to look at its movement in stocks, NTPM's share price has been dropping which makes it even more attractive and to me that drop is mainly due to the selling by Lembaga Tabung Haji which has been reducing its stake from 9+% to a current low of 5.5%. At the same time, the controlling shareholders have been nibbling at the shares themselves and they have made some share buybacks as well, albeit in small quantities. If you look below at the distribution of shareholdings, the shares for NTPM can be fairly liquid if it wants to but the selling have been largely done by LTH which caused the shares to be hovering around RM0.45.

Looking forward, the business that NTPM is in will no doubt continue to be competitive but I see the company to be moving towards the right direction rather than being shaken by the competition. The position that it has built over the last few years have shown that NTPM is not a pushover.

Because of that, I have bought 16,800 shares at RM0.45 today.


Justin said...

Hi Felicity,

I am holding some NTPM too for years, welcome to the board!

eKimkee said...

Let's see how far this Smallcap can grow.

Benson said...

For me, in choosing tissue, i will buy tissue tht offer best discount with reasonable quality, brand will be not in top priority. If compare to warren buffet 's Coca cola, this drink is unique and hard to copy 100%.

felicity said...

Brand does play a role, Benson as otherwise P&G and Kimberly-Clark would not be where they are today.

shrobin said...

I was told those selling under Tesco packaging are supplied by NTPM. Maybe is Tesco policy not to reveal the source.

shrobin said...

On July 7, the STAR did a write up on NTPM. If the expansion is successful, then it may still have some growth coming.

Benson said...
This comment has been removed by the author.
Benson said...

Ya,tht true also, i just worry bcz net profit keep dropping. How abt Ajinomoto, do u think this is the stock worth to invest in? Thx ya.

felicity said...

Ajinomoto is a solid company with a strong differentiation in its own space.

but don't hope for spikes in this company.

shrobin said...

If you look at the price trend of pulp for the last few years, the drop in profit tally with the high pulp price. Indexmundi is a good site to see the pulp price trend. If you look at the quarterly revenue, it is still on up trend, the profit is not going up likely due to high pulp price. The lower pulp price this year rightly should improve the bottom line profit. Important now is to monitor the next two quarters result.

felicity said...

Looked at Aji again, I think its great considering the current situation now

Benson said...

Ya, Ajinomoto is a good company, but i wondering why net profit margin is less than 10 although this company dominate largely ajinomoto market.

felicity said...

I think it could be due to a large portion of its customers base are still businesses rather than consumers directly.

keano said...

hi felicity,

I have a not relevant question. What is the difference between realized and unrealized total retained profits of a company? What is the rationale behind this classification? Thx alot in advance!

felicity said...

Hi Keano
It can be quite lengthy in explanation.
Unrealised profits / losses includes deferred tax income / expense, cumulative gains from remeasurement of assets, unrealised loss or gains from currency etc.
Let me try by explaining one of them - unrealised loss or gains from currency translation.

Say you have delivered a project for USD100,000. At the time of sales realisation, the company has registered 1 USD = 3.0 MYR, hence registering revenue at RM300,000. As the collection is yet to be received, at the end of the accounting period the currency translation improved from 1 USD = 3.2 MYR. Because of that, the company will register unrealised profit of RM20,000 (RM320,000 - RM300,000) at the end of accounting period. As the money is yet to be collected, this unrealised profit may change as who knows when the company receives the payment, the currency translation may change.

keano said...

understood..thx again!

山下聖人 said...

if you buy it for dividend, it is attractive now at around 6%,but looking at its result, i am worry.
Its GPM and NPM keep on dropping year by year.

Also, its debt is increasing

felicity said...

As I know the expansion the South and East Malaysia is the reason for its lower margin and higher debt